2016 Annual Report
Included in the 2016 Annual Report:
Form 10-K filed with the U.S. Securities and Exchange Commission on
February 22, 2017
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 2016
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________.
Commission file number: 000-50600
Blackbaud, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
11-2617163
(I.R.S. Employer Identification No.)
2000 Daniel Island Drive
Charleston, South Carolina 29492
(Address of principal executive offices, including zip code)
(843) 216-6200
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.001 Par Value
Name of Each Exchange on which Registered
The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES
NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES
NO
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. YES
NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files). YES
NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES
NO
The aggregate market value of the registrant's common stock held by non-affiliates of the registrant on June 30, 2016 (based on the closing
sale price of $67.90 on that date) was approximately $3,142,932,861. Common stock held by each officer and director and by each person
known to the registrant who owned 10% or more of the outstanding common stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
The number of shares of the registrant’s common stock outstanding as of February 6, 2017 was 47,532,014.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 2017 Annual Meeting of Stockholders currently scheduled to be held June 13,
2017 are incorporated by reference into Part III hereof. Such definitive Proxy Statement will be filed with the Securities and Exchange
Commission no later than 120 days after the conclusion of the registrant's fiscal year ended December 31, 2016.
TABLE OF CONTENTS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
PART I.
Item 1.
Business
Item 1A. Risk factors
Item 1B. Unresolved staff comments
Item 2.
Properties
Legal proceedings
Item 3.
Item 4. Mine safety disclosure
PART II.
Item 5. Market for registrant's common equity, related stockholder matters and issuer purchases of equity
securities
Item 6.
Selected financial data
Item 7. Management's discussion and analysis of financial condition and results of operations
Item 7A. Quantitative and qualitative disclosures about market risk
Item 8.
Financial statements and supplementary data
Item 9. Changes in and disagreements with accountants on accounting and financial disclosure
Item 9A. Controls and procedures
Item 9B. Other information
PART III.
Item 10. Directors, executive officers and corporate governance
Item 11. Executive compensation
Item 12. Security ownership of certain beneficial owners and management and related stockholder matters
Item 13. Certain relationships and related transactions, and director independence
Item 14. Principal accountant fees and services
PART IV.
Item 15. Exhibits and financial statement schedules
Item 16. Form 10-K Summary
SIGNATURES
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CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including the documents incorporated herein by reference, contains forward-looking
statements that anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These
"forward-looking statements" are made subject to the safe-harbor provisions of the Private Securities Litigation Reform
Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Forward-looking statements consist of, among other things, trend analyses, statements regarding
future events, future financial performance, our anticipated growth, the effect of general economic and market conditions,
our business strategy and our plan to build and grow our business, our operating results, our ability to successfully integrate
acquired businesses and technologies, the effect of foreign currency exchange rate and interest rate fluctuations on our
financial results, the impact of expensing stock-based compensation, the sufficiency of our capital resources, our ability to
meet our ongoing debt and obligations as they become due, and potential litigation involving us, all of which are based
on current expectations, estimates, and forecasts, and the beliefs and assumptions of our management. Words such as
“believes,” “seeks,” “expects,” “may,” “might,” “should,” “intends,” “could,” “would,” “likely,” “will,” “targets,”
“plans,” “anticipates,” “aims,” “projects,” “estimates,” or any variations of such words and similar expressions are also
intended to identify such forward-looking statements. These forward-looking statements are subject to risks, uncertainties
and assumptions that are difficult to predict. Accordingly, they should not be viewed as assurances of future performance,
and actual results may differ materially and adversely from those expressed in any forward-looking statements.
Important factors that could cause actual results to differ materially from our expectations expressed in forward-looking
statements include, but are not limited to, those summarized under “Item 1A. Risk factors” and elsewhere in this report
and in our other SEC filings. Forward-looking statements represent our management's beliefs and assumptions only as of
the date of this Annual Report on Form 10-K. We undertake no obligation to update or revise any forward-looking
statements, or to update the reasons actual results could differ materially from those anticipated in any forward-looking
statements, whether as a result of new information, future events or otherwise.
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PART I.
ITEM 1. BUSINESS
Description of Business
We are the world’s leading cloud software company powering social good. We combine software, services, data intelligence
and expertise to help nonprofits, foundations, education institutions, corporations and individual change agents advance
their missions. Blackbaud brings more than three decades of software and services leadership to the sector, offering a full
spectrum of cloud and on-premise solutions, as well as a resource network that empowers and connects organizations of
all sizes. Since originally incorporating in New York in 1981, later reincorporating as a South Carolina corporation in 1991
and a Delaware corporation in 2004, our portfolio of software and services has grown to support nonprofit fundraising
and relationship management, digital marketing, advocacy, accounting, payments and analytics, as well as grant
management, corporate social responsibility, and education. Our solutions are designed to meet the needs of virtually all
types of nonprofit and charitable giving, from major global institutions to local soup kitchens. With recent acquisitions,
we have expanded our addressable market to include institutions involved with the entire spectrum of giving activities,
such as nonprofits, K-12 private and higher education institutions, faith-based organizations, healthcare organizations,
foundations, and other charitable giving entities and corporations. Organizations that use Blackbaud technology raise,
invest, manage and award more than $100 billion each year. At the end of 2016, we had approximately 35,000 customers
located in over 60 countries using our solutions. We are deeply proud to play a part in our customers’ success in their
missions to cure diseases, advance education, preserve and share arts and culture, help animals, support those in need
and more.
Market Overview
The philanthropic industry is significant and our addressable market is substantial and growing
There were approximately 1.6 million U.S. nonprofit organizations registered with the Internal Revenue Service in 2016,
including approximately 1.1 million charitable 501(c)(3) organizations. Worldwide, there are millions more charities. The
nonprofit market represents the third largest workforce category in the U.S. behind retail and manufacturing, representing
10% of total employment in the United States. According to Giving USA, donations made to U.S. nonprofit organizations
in 2015 were $373.3 billion, amounting to 2.1% of U.S. GDP, a 4.1% increase from 2014. The average annual rate of
change in total giving dollars over the last 40 years was 6.7%.
Our estimated current total addressable market ("TAM") is $6.7 billion. This includes an expansion in 2015 from our
acquisition of Smart, LLC ("Smart Tuition") into K-12 tuition and financial aid management, which is a new and near
adjacency within the education market. The total market expansion created by our acquisitions of Smart Tuition, WhippleHill
Communications, Inc. (“WhippleHill”) and MicroEdge Holdings, LLC (“MicroEdge”) is estimated to be in excess of $1.5
billion.
Traditional methods of fundraising are often costly and inefficient
Many nonprofits use manual methods or stand-alone software applications not specifically designed to manage fundraising.
Such methods are often costly and inefficient because of the difficulties in effectively collecting, sharing, and using donation-
related information. Furthermore, general purpose software applications frequently have limited functionality and do not
efficiently integrate multiple databases. Some nonprofit organizations have developed proprietary software, but doing so
is expensive, requiring on-site technical personnel for development, implementation and maintenance.
The nonprofit industry faces particular operational challenges
Nonprofit organizations must efficiently:
•
Solicit funds and build relationships with major donors;
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• Garner small cash contributions from numerous contributors;
• Manage and develop complex relationships with large numbers of constituents;
• Communicate their accomplishments and the importance of their mission online and offline;
• Comply with complex accounting, tax and reporting requirements that differ from those for traditional businesses;
•
•
•
Solicit cash and in-kind contributions from businesses to help raise money or deliver products and services;
Provide a wide array of programs and services to individual constituents; and
Improve the data collection and information sharing capabilities of their employees, volunteers and donors by
creating and providing distributed access to centralized databases.
Because of these challenges, we believe nonprofit organizations can benefit from software applications and services
specifically designed to serve their particular needs.
Corporations, grant making institutions and foundations also face unique challenges
The market segments addressed by our MicroEdge acquisition, which include corporations, grant making institutions and
foundations, face their own unique challenges, including the need to:
• Quantify and improve the impact of their grants;
• Cultivate better relationships with grantees;
• Achieve better internal collaboration and alignment with board members, reviewers, and other stakeholders;
•
•
•
Illustrate the impact of their corporate philanthropy efforts to the communities they serve;
Engage employees in meaningful volunteering, giving and other activities;
Ensure that their philanthropic efforts align with their business initiatives;
• Manage all of a foundation's activities, including fundraising and accounting;
•
Expand the reach of their fundraising efforts; and
• Cultivate new and existing donors.
Strategy
Our objective is to maintain and extend our position as a leading provider of software and services for the global social
good community, supporting their missions from fundraising to outcomes. Our key strategies for achieving this objective
are to:
Delight our customers
We intend to make our customers' experience with us effective, efficient and satisfying from their initial interest in our
solutions and services, through their decision to purchase, engage with customer support and utilize solution enhancements.
We continue to focus on initiatives aimed at improving the consistency and quality of user experience across the offerings
we provide to our customers. We continue to evolve the manner in which we package and sell our offerings to provide
high quality and value combined with flexibility to meet the different needs of our existing and prospective customers. For
example, we have increased the number of our cloud solutions sold under a subscription pricing model, which can make
it easier for customers to purchase our solutions. In addition, we are continuing to integrate value-adding capabilities such
as payment processing, analytics and business intelligence into our suite of solutions to better address our customers'
needs with comprehensive offerings. We will continue to focus on providing the highest level of solution support, enhancing
our existing solutions and developing new solutions and services designed to help our customers to be more effective and
achieve their missions.
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Execute on our Four-Point Growth Strategy
Our long-term aspirational financial goals include accelerating organic revenue growth, expanding our operating margins
and increasing our operating cash flows. In 2014, we introduced and began executing on a five-point growth strategy
targeted to achieve those goals and to drive an extended period of quality enhancement, solution and service innovation,
and increasing operating efficiency and financial performance. During 2016, the strategy evolved to account for progress
to date resulting in the combination of Streamline Operations and Execute our 3-Year Margin Improvement Plan into a
new initiative to Improve Operating Efficiency. Our updated strategy is as follows:
1.
Integrated and Open Solutions in the Cloud
We will continue to transition our business to predominantly serve customers through a subscription-based cloud
delivery model, enabling lower cost of entry, greater scalability and lower total cost of ownership to our customers.
There is a concerted effort underway to optimize our portfolio of solutions and integrate powerful capabilities —
such as built in data, analytics, payment processing and tailored user-specific experiences — to bring even greater
value and performance to our customers.
During 2016, we further expanded certain of our pre-integrated services through the general release of SKY
Reporting™, beginning with Raiser's Edge NXT. SKY Reporting provides new business intelligence and reporting
tools aimed at seamlessly delivering valuable insights and productivity enhancing capabilities to customers. We
also announced the general release of SKY API, a key component of Blackbaud SKY™, which is our new, innovative
cloud technology architecture for the global social good community that now powers six of our next generation
solutions. SKY API allows customers, partners, and application developers to extend functionality and integrate
with our solutions. For example, we announced the integration of Raiser's Edge NXT with the salesforce platform
through our SKI API’s.
We acquired Attentive.ly, a cloud software provider that provides social media capabilities allowing organizations
to conduct social listening, identify key influencers and drive engagement through its cloud solution. This acquisition
accelerates our ability to deliver these capabilities to our customers by integrating Attentive.ly technology into
Blackbaud SKY.
We also made several portfolio announcements, ranging from solution integrations, to new capabilities for existing
solutions, to new solution introductions.
2. Drive Sales Effectiveness
We are making investments to increase the effectiveness of our sales organization, with a focus on enabling our
expanding sales teams with the talent, processes, and tools to accelerate our revenue growth and improve
effectiveness. Our customer success program separates account management from the sales organization, and is
intended to drive customer loyalty and retention.
In early 2016, we launched a value added reseller ("VAR") program. We continued to make investments in our
sales, marketing and customer success organizations and improved our market coverage by deploying these
resources into key markets like Toronto, where we opened a new office. In addition, we are continuing to optimize
our go-to-market sales strategies such as offering solutions and services tailored to the needs of customers operating
within vertical markets including K-12 private schools, foundations, higher education and healthcare institutions,
among others.
3. Expand TAM into Near Adjacencies with Acquisitions and Investments
We will continue to evaluate compelling opportunities to acquire companies, technologies and/or services. We
will be guided by our acquisition criteria for considering attractive assets that expand our total addressable market
("TAM"), provide entry into new and near adjacencies, accelerate our shift to the cloud, accelerate revenue growth,
are accretive to margins and present synergistic opportunities.
4.
Improve Operating Efficiency
We have largely completed the installations of best-in-breed back-office solutions that consolidate and standardize
our business operations utilizing scalable tools and systems. Our focus is now shifting towards optimizing those
systems, as well as operational excellence and quality initiatives focused on streamlining processes to gain efficiency
and scalability. In 2014, we implemented a 3-year operating margin improvement plan designed to increase our
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operating effectiveness and efficiency and improve non-GAAP operating margins 300 to 600 basis points on a
constant currency basis from our 2014 baseline of 17.5%, by the time we exit 2017.
Attract Top Talent and Actively Engage Employee Base
Our customer's passion is our purpose, and we have incredible customers whose missions make the world a better place
for all of us. Driven by this purpose, our employees come to work every day knowing they can make a real difference with
our customers, and thus the world. Collaboration, innovation and high standards are core to our culture and help enable
the great work we do. We strive to hire the best employees and provide a workplace where their talents and potential are
realized. Our employees' engagement is a focus of every leader at Blackbaud, and we continually work to understand what
matters and to make our workplace better. We believe people with a passion for purpose can join our team and have a
unique career experience. Our leaders are committed to our employees' personal and career development and continually
work to improve the training and tools provided to their teams.
Build our Reputation as an Industry Thought Leader
In our 35 years of experience in the philanthropic market, we have gained significant insight into the market and industry
segments in which we operate. We produce a wide range of thought leadership materials, including blogs, monthly indices
and white papers, which provide insights and guidance to the social good community. We also participate in a number of
industry forums where we exchange views and engage with industry and governmental leaders. Our annual user conference,
bbcon™, is used in part as a forum to offer thought leadership to our customers, as well as other market specific user
conferences such as our annual K-12 conference. We intend to expand these activities and further build our reputation as
a thought leader within the industry.
Operating Structure
The markets we serve are very diverse, with organizations that range from small, local charities to large, multinational relief
organizations. The needs of our customers can vary greatly according to their size and function. To better serve our
customers' unique and wide-ranging operations, we organize our operating structure into three operating units: the General
Markets Business Unit (the “GMBU”), the Enterprise Customer Business Unit (the “ECBU”) and the International Business
Unit (the “IBU”).
Following is a description of each of our operating units, each of which is a reportable segment for financial accounting
purposes:
•
•
•
The GMBU is focused on marketing, sales, delivery and support to all emerging and mid-sized prospects and
customers in North America.
The ECBU is focused on marketing, sales, delivery and support to large and/or strategic prospects and customers
in North America.
The IBU is focused on marketing, sales, delivery and support to all prospects and customers outside of North
America.
Each operating unit contains specialized sales, services, support, marketing and finance functions. This structure has allowed
us to be more responsive to the needs of fundamentally different customer segments and to focus on developing solutions
appropriate for these unique markets while leveraging the infrastructure of our broader organization and shared technology
in a cost-effective manner.
During 2016, we generated revenue in three reportable segments (the GMBU, the ECBU and the IBU) and in four geographic
regions (United States, Canada, Europe and Australia), as described in more detail in Note 16 of our consolidated financial
statements. It is impracticable for us to identify our total assets by segment.
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Summarized below is our percentage of total revenue for each of our principal solution and service groups:
Blackbaud, Inc.
Percentage of Total Revenue
Years ended December 31,
Subscriptions
Maintenance
Services
2016
58.7%
20.1%
19.1%
2015
52.0%
24.1%
20.8%
2014
46.7%
26.1%
22.7%
Solutions and Services
We offer a full spectrum of cloud and on-premise solutions as well as a resource network that empowers and connects
organizations of all sizes. Blackbaud's portfolio of software and services support nonprofit fundraising and relationship
management, digital marketing, advocacy, accounting, payments and analytics, as well as grant management, corporate
social responsibility ("CSR"), and education. We offer the social good community complete solutions to advance their
missions with the market-leading constituent relationship management ("CRM") system and online engagement platforms,
backed by our analytic services, which deliver insights powered by the world's most robust philanthropic data set. In most
cases, the core of our solution portfolio centers around a CRM system, which seamlessly integrates with other applications
to help our customers conduct activities vital to advancing their missions, such as managing finances, analyzing prospects
and market data, effectively communicating with current and prospective supporters and promoting their cause online
and offline. Our solutions can be combined with a range of consulting, training and professional services, maintenance
and technical support as well as payment processing, analytic and business intelligence services. In addition, we offer
solutions that stretch across the spectrum of giving activities, including CSR programs, grant management, employee
involvement, foundation management and other philanthropic activities.
We provide solutions and services in the following areas that address many of the technological and business process needs
of our customers:
•
Fundraising & Relationship Management;
• Analytics & Business Intelligence;
• Communication & Marketing;
•
Finance & Operations;
• K-12 Private Schools;
• Arts and Cultural;
• Customer Success;
• Customer Support and Maintenance;
•
•
•
Payment Processing;
Professional Services;
Training; and
• CSR.
Fundraising and Relationship Management
Raiser's Edge NXT is our flagship smart cloud fundraising and relationship management solution. Raiser's Edge NXT is
the first and only cloud fundraising and relationship management solution that is all-inclusive, fully integrated with data,
analytics, payment processing and tailored user-specific experiences. Leveraging Blackbaud SKY, our modern, integrated
and open cloud, it is, we believe, the most advanced technology available that enables nonprofits to operate more efficiently
and raise more support for their missions.
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Blackbaud CRM™, also known informally as Enterprise CRM, is a comprehensive, customizable fundraising and
relationship management solution. It is our lead offering for enterprise-level organizations seeking a powerful, yet adaptable
solution for fundraising, marketing, and program management across the engagement lifecycle, specializing in supporting
sophisticated major giving, membership and high volume direct marketing programs. Blackbaud CRM helps organizations
build deeper and more personalized relationships with constituents, build their brand through online engagement and
multichannel communication tools, and more effectively fundraise, leveraging campaign management, business intelligence
and analytics. Blackbaud CRM can be sold as an integrated solution with our enterprise online solutions to enable
multichannel marketing, online engagement and event fundraising.
Luminate CRM™ is our Salesforce-based CRM offering for nonprofits and is sold as a single integrated solution with
Luminate Online. Luminate CRM is built on the SalesForce.com cloud computing application platform and offers nonprofits
an extensible suite via the Salesforce App Exchange for consolidating information and business processes into one system.
The core components of Luminate CRM are campaign management, constituent relations, business intelligence and
analytics. When combined with Luminate Online, it provides best-in-class functionality to help nonprofits with online
fundraising, peer-to-peer event fundraising, payment processing, email marketing, advocacy and website management.
eTapestry™ is a simple, cloud fundraising and donor management solution built specifically for smaller, developing
nonprofits in need of a cloud solution to support basic fundraising needs. It offers nonprofit organizations a cost-effective
way to manage donors, process gifts, create reports, accept online donations and communicate with constituents. This
technology provides a system that is simple to maintain, efficient to operate and is intuitively easy to learn without extensive
training.
everydayhero™ is an innovative, cloud crowdfundraising solution designed to meet the peer-to-peer fundraising needs
of nonprofits' supporters. It is a leading donor acquisition tool, and helps nonprofits connect with a younger, more online-
focused generation of donors, a first step in helping nonprofits develop long-term relationships with their supporters.
Founded in Australia, where it is a market leader, everydayhero is now sold throughout Europe and the U.S. With recent
integrations with fitness applications such as Strava and MapMyFitness, everydayhero continues to enhance the fundraising
landscape by providing millions across the globe the chance to easily integrate fitness and philanthropy.
Analytics & Business Intelligence
Our analytics offerings provide comprehensive solutions for donor acquisition, prospect research, data enrichment, and
performance management, enabling nonprofits to define effective campaign strategies and maximize fundraising results.
These services either integrate with or are already integrated into our software solutions to give our customers a
comprehensive view of their supporters and the market and provide information essential to making well-informed operating
decisions.
Our analytics offerings include subscription solutions and services within the following areas:
Donor Acquisition - Our donor acquisition solutions leverage unique data assets to create acquisition mailing lists and
predictive models that identify donor populations that meet the affinity, value and response criteria of our nonprofit
customers. Nonprofit organizations use our prospect lists to solicit gifts and other support.
Prospect Research - Our prospect research solutions include: custom data modeling that delivers critical information on
a prospect's likelihood to make a gift to an organization; wealth screenings that deliver detailed wealth information and
giving capacity data on prospects; and web-based prospect management software that combines public data with donor
information from a nonprofit's database to build a complete view of prospects for targeting and securing gifts.
Data Enrichment - Our data enrichment solutions enhance the quality of the data in our customers' databases. These
solutions include: identifying outdated address files in the database and making corrections based on United States Postal
Service data, as well as appending data by using known fields in an organization's constituent records to search and identify
key demographic and contact information.
Performance Management - Our performance management solutions create relevant and insightful reports that
benchmark performance and illustrate key industry trends based on performance attributes provided by our nonprofit
customers. Nonprofit organizations use our performance and industry analysis reports to assess marketing and operational
effectiveness and also to influence operational planning.
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Communications & Marketing
Luminate Online™, delivered in the cloud, helps our customers better understand their online supporters, make the right
ask at the right time, and raise money online. It includes tools to build online fundraising campaigns as part of an
organization's existing website or as a stand-alone fundraising site. Donation forms, gift processing, and tools for
communicating through web pages and email give our customers the essentials for building sustainable donor relationships.
Customers can also purchase additional modules including TeamRaiser, a solution within events management that allows
nonprofits' constituents to create personal or team fundraising web pages and send email donation appeals in support of
events such as a walks, runs and rides.
Blackbaud Online Express™ is a simple, cloud fundraising and marketing tool designed for smaller nonprofit organizations
using Raiser’s Edge. It provides nonprofits with easy-to-use features and functionality such as email marketing, donation
forms, event registrations, and dashboard metrics.
Blackbaud NetCommunity™ is an online marketing and communications tool that enables organizations that utilize
Raiser's Edge software to build interactive websites and manage email marketing campaigns. With Blackbaud
NetCommunity, organizations can, among other things, establish online communities for social networking among
constituents and also provide a platform for online giving, membership purchases and event registration. Because Blackbaud
NetCommunity requires a Raiser's Edge database to operate, it can only be sold with Raiser's Edge or to existing Raiser's
Edge customers.
Finance & Operations
Financial Edge NXT became generally available in September 2015 and is the first-of-its-kind cloud accounting solution
for nonprofits that is intuitive, fully integrated, and built the way nonprofits need it on our modern Blackbaud SKY technology
architecture. Financial Edge NXT is advanced technology with powerful reporting tools to help accounting teams drive
transparency, stewardship, and compliance while enabling them to seamlessly manage transactions and eliminate manual
processes. It seamlessly integrates with Raiser's Edge NXT to simplify gift entry processing and relates information from
both systems in an informative manner to eliminate redundant tasks and manual processes. Financial Edge NXT provides
nonprofit organizations with the means to help manage fiscal and fiduciary responsibility, enabling them to be more
accountable to their constituents.
GIFTS Online™ is a cloud solution built with core functions that provide comprehensive grant making capabilities, but
with many additional capabilities and features, such as visual dashboards. It has a modern user interface, is user friendly,
and can be highly personalized.
FIMS™ is an on-premise, fully-integrated foundation management system that helps community foundations, faith-based
organizations and education and scholarship programs manage grants, finances and donors in one centralized,
comprehensive system. It features an open, customizable framework that helps community foundations manage everything
from donors, gifts and investments to grants, grantees, funds and financials. We also offer FIMS as a fully hosted solution.
Blackbaud Outcomes™ empowers funders and nonprofits to collaborate around their intended program outcomes and
work together to achieve impact. The cloud software helps users define and measure their outcomes, allowing them to
track the effectiveness of their programs, make informed decisions, better understand the impact of their social investments,
and tell an impact story using ROI-focused results and a common outcomes measurement language.
K-12 Private Schools
onMessage™ is a content management system that gives schools the flexibility to build and edit webpages, with easy
access to content types including photos, videos, downloads, text and more. It allows users to share material and contribute
content across an entire school community.
onRecord™ makes it easy for schools to manage schedules, transcripts and GPAs. A new Student Information System
that works directly with onCampus (LMS), onRecord simplifies the process of sharing student data and academic records
securely.
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onCampus™ is a learning management system that makes it easy to manage, connect, and share information with
students, parents, and an entire school community. Developed with direct input from our customers, onCampus gives
teachers the tools to meet the demands of a modern private school.
onBoard™ is an enrollment management system that simplifies a school’s admissions process. onBoard helps admissions
teams and prospective families manage and track their progress, from inquiry and application through acceptance and
enrollment.
Smart Tuition™ benefits schools by giving administrators better access to financial data and payment services, and by
giving parents more ways to remit tuition payments. The solution helps ease the burden for administrative staff by offering
invoicing, payment processing, customer service, enhanced communication with parents and later payer follow-up services.
Smart Aid™ offers schools the ability to accept online, customized applications for financial aid and to make better financial
aid decisions with a proprietary Hobbies, Interest and Lifestyles ("HIL") profile. The HIL profile provides in-depth information
on an applicant, delivering to the school a way to make more informed decisions on how they distribute financial aid
awards.
Arts & Cultural
Altru™ is a cloud solution that helps arts and cultural organizations consolidate admissions, membership, fundraising,
merchandise, marketing and more, giving users a comprehensive view of their supporters. By helping general admissions
arts and cultural organizations gain a clear, 360-degree view of their organization, it enables them to operate more
efficiently, engage and cultivate patrons and supporters, streamline external and internal communication efforts, and
reduce IT costs. It contains tools for constituent and membership management, program sales, retail sales and ticketing,
volunteer management, and events management. It also has sophisticated reporting functionality and tools to manage
marketing, communications and fundraising.
Customer Success
Our Customer Success organization is responsible for managing the business and technical relationship with our customers.
Their mission is to develop and foster relationships within all levels of the customer organization to build more demonstrated
value in our solutions and services. Customer Success Managers ("CSMs") work to proactively communicate to drive overall
satisfaction and retention of our customer's business. At every point of communication, they work to collect and analyze
actionable information that can be used to make their experience positive and consistent. Their goal is to partner with
customers to ensure that they are fully engaged and have an advocate within Blackbaud who works to meet their needs.
CSMs bring industry knowledge and expertise to the customer relationship and strive to help our customers achieve positive
growth and outcomes.
Customer Support & Maintenance
Most customers that purchase our solutions also enroll in one of our support and maintenance programs. For many of our
cloud-based subscription solutions, customer support is automatically included as part of the solution. Customers enrolled
in the programs enjoy fast, reliable customer support, receive regular software updates, stay up-to-date with regular
communication and have unlimited, around-the-clock access to support resources, including our extensive knowledgebase
and forums. Customers who enroll in upgraded support and maintenance plans receive enhanced benefits such as call
support priority and dedicated support resources.
Payment Processing
Our solutions provide our customers payment processing capabilities that enable their donors to make donations and
purchase goods and services using numerous payment options, including credit card and automated clearing house (“ACH”)
checking transactions, through secure online transactions. Blackbaud Merchant Services is a value-added service integrated
with our solutions that makes credit card processing simple and secure. Customers are charged one rate for credit card
transactions, with no extra fees, making Blackbaud Merchant Services a competitive option. The service also provides
customers with a payment card industry (“PCI”) compliant process and streamlined bank reconciliation. As discussed above,
we also provide our K-12 private school customers with student tuition payment processing services.
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Blackbaud, Inc.
Professional Services
Our consultants provide data conversion, implementation and customization services for each of our software solutions.
These services include:
•
System implementation;
• Data conversion, business process analysis and application customization;
• Database merging and enrichment, and secure credit card transaction processing;
• Database production activities; and
• Website design services.
In addition, we apply our industry knowledge and experience, combined with expert knowledge of our solutions, to evaluate
an organization's needs and consult on how to improve a business process.
Training
We provide a variety of onsite, instructor-led online and on-demand training services to our customers relating to the use
of our solutions and application of best practices. Our instructors have extensive training in the use of our solutions and
present course material that is designed to include hands-on lab exercises, as well as course materials with examples and
problems to solve.
Corporate Social Responsibility
AngelPoints™ is an integrated CSR solution that helps corporations mobilize the collective power of their employees to
make a positive impact on their people, their company, and the world. AngelPoints contains modules that help companies
manage employee volunteer and giving programs.
Customers
At the end of 2016, we had approximately 35,000 customers including nonprofits, K-12 private and higher education
institutions, healthcare organizations, foundations and other charitable giving entities, and corporations. Our largest single
customer accounted for approximately 1% of our 2016 consolidated revenue.
Sales and Marketing
The majority of our solutions and related services are sold through our direct sales force. Our direct sales force is
complemented by a team of account development representatives responsible for sales lead generation and qualification.
These sales and marketing professionals are located throughout the United States, the United Kingdom, Canada, Australia
and New Zealand. We had 399 and 364 direct sales employees as of December 31, 2016 and 2015, respectively. We plan
to continue expanding our direct sales force in the Americas, Europe, Australia and New Zealand as our operations grow
internationally and market demand increases.
We generally begin a customer relationship with the sale of one of our cloud solutions, such as Raiser's Edge NXT or
Luminate, and then offer additional solutions and services to the customer as the organization's needs increase.
We conduct marketing programs to create brand recognition and market awareness for our solutions and services. Our
marketing efforts include participation at tradeshows, technical conferences and technology seminars, publication of
technical and educational articles in industry journals and preparation of competitive analyses. Our customers and strategic
partners provide references and recommendations that we often feature in our advertising and promotional activities.
We believe relationships with third parties can enhance our sales and marketing efforts. We have and will continue to
establish additional relationships with companies that provide services to the nonprofit industry, such as consultants,
educators, publishers, financial service providers, complementary technology providers and data providers. These companies
promote or complement our nonprofit solutions and provide us access to new customers.
2016 Form 10-K
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Blackbaud, Inc.
Corporate Philanthropy and Volunteerism
Blackbaud operates under a fundamental belief that the world would be better if good took over. The company is an active
participant in the ecosystem of good, working to drive positive change both through what we do as a business and how
we serve individually. We offer an array of philanthropy programs aimed at engaging our employees as agents of good,
including matching gifts, competitive grants that honor excellent examples of volunteerism, employee-led grants
committees, skills-based volunteerism initiatives, as well as science, technology, engineering and mathematics focused
community programs. Blackbaud attracts people who are committed to service, with 86% saying our focus on nonprofits
was a driver in their decision to join the company, 85% actively serving as volunteers and 25% serving on a nonprofit
board or committee.
Competition
The market for software and related services in the nonprofit sector is competitive and highly fragmented. For certain areas
of the market, entry barriers are low, as general tools for small businesses can usually be configured to manage the most
basic marketing, contact management, and accounting needs of nonprofits. However, once basic needs are met, programs
unique to nonprofits like fundraising, gift and grant management, and peer-to-peer activism require highly specialized
tools that are more complex to build or customize out of general business software. Moreover, because nonprofits rely
heavily on relationships with and among their supporters, integration of these systems drives value beyond mere efficiency.
Hence, we believe our experience, the full spectrum of our current solutions and our ability to deliver on future solutions
makes us a strong competitor. We expect to continue to see new competitors as the market matures and nonprofit
organizations rely more heavily on technology to manage emerging revenue channels and increasingly complex operations.
Our competition falls into three primary categories: (1) niche products that are tailored to specialized needs; (2) vertical-
specific solutions; and (3) general business software that can be configured to manage some nonprofit-specific processes.
Niche products are usually developed as a solution for a single problem at an organization and are adopted by similar
organizations to solve a specialized need. These are typically offered by vendors who may have deep industry expertise but
may not have the resources to expand beyond a specialized area. We believe we compete against these solutions by offering
a set of integrated solutions rather than a single point solution, which we believe improves the overall customer experience.
In addition, our open platform allows integration to specialized applications so the opportunity for disruption from these
competitors is minimized.
Vertical-specific solutions are offered by competitors seeking to meet the enterprise-wide needs of a specific sub-segment
of nonprofits. Typically, these solutions are offered by vendors who may offer either a point solution or integrated suite
of products used by a vertical. We believe we compete successfully against these competitors through a combination of
our integrated suite of offerings within verticals where we compete, offering solutions with market leading robustness as
well as the scale, reach, and reputation of our organization.
General business software vendors such as Microsoft, Salesforce.com and Oracle, compete with us in certain areas of our
business. However, they generally do not have nonprofit specific focus and, therefore, do not offer or intend to offer
nonprofit-specific versions. As these products are also not easily customized, the adoption of general business software is
limited to nonprofits with very basic operations and simple needs. We believe our solutions compete successfully against
general business software as a nonprofit’s needs grow more complex. There is a subset of general business software
competitors who have introduced nonprofit-specific versions of their products. We believe that because these products
were not originally designed to support the specific needs of nonprofits, they are not yet capable of meeting market needs
without significant customization. As a result, we believe we are able to compete successfully to meet nonprofit-specific
requirements, often integrating with general business platforms used for their more generalized operations.
Less frequently, we compete with providers of traditional, non-automated fundraising service providers, including parties
providing services in support of traditional direct mail or email campaigns, special events fundraising, peer to peer,
telemarketing and personal solicitations. We believe we compete successfully against these traditional fundraising service
providers, primarily because our solutions and services are more automated, more robust, more tailored to the needs of
nonprofit organization and more efficient.
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2016 Form 10-K
Blackbaud, Inc.
Research and Development
We have made substantial investments in research and development and expect to continue to do so as a part of our
strategy to introduce additional innovative solutions and services. As of December 31, 2016, we had 648 employees working
on research and development. Our research and development expenses for 2016, 2015 and 2014 were $89.9 million,
$84.6 million and $77.2 million, respectively. In addition, we had cash outlays for qualifying capitalized software
development costs during 2016, 2015 and 2014 of $26.4 million, $15.5 million and $8.5 million, respectively. We plan to
continue significantly investing in the innovation of our portfolio of solutions and services.
Technology and Architecture
Our new cloud technology, SKY, combines the latest in cloud infrastructure, leading edge development processes, and a
micro service oriented architecture to deliver our next generation solutions, the first of which were Raiser's Edge NXT and
Financial Edge NXT. One component of SKY, SKY API, gives customers, partners and other application developers access
to industry-standard, open, Representational State Transfer (or REST) APIs and a comprehensive set of resources that enable
them to customize, integrate or extend functionality of our solutions. Additionally, SKY UX, our open source user experience
framework, increases the reach of our solutions by enabling developers to create interfaces that look and feel like ours
by using the same user experience foundation as our engineers. SKY is now the foundation for Blackbaud's next generation
solutions including Raiser’s Edge NXT, Financial Edge NXT, Blackbaud Outcomes and the next generation of Luminate
Online.
Other solutions, such as Blackbaud CRM, are built on the Microsoft.Net framework platform. These solutions are web-
delivered applications utilizing an architecture built on internet standards and protocols such as HTTP, XML and SOAP. This
architecture is designed to support on-premise and hosted application deployment scenarios. The applications expose web
service application programming interfaces so that functionality and business logic can be accessed programmatically from
outside the context of an interactive user application. Blackbaud CRM also leverages some of the SKY components.
Each of our Luminate solutions, including Luminate Online, Luminate CRM and TeamRaiser, are cloud-based applications
that are open and extensible and employ a multi-tenant architecture requiring only a web browser for customer access.
Luminate Online and TeamRaiser share a common codebase and database, and are built on the Java runtime
environment. Luminate CRM is built on the SalesForce.com platform.
Regardless of solution choice, our development strategies are designed to be:
•
Flexible. Our component-based architecture is programmable and easily extended by our customers without
requiring modification of the source code, ensuring that the technology can be extended to accommodate changing
demands of our customers and the market.
• Adaptable. The architecture of our applications allows us to easily add features and functionality or to integrate
with third-party applications in order to adapt to our customers' needs or market demands.
•
Scalable. We combine a scalable architecture with the performance, capacity and load balancing of industry-
standard web servers and databases used by our customers to ensure that the applications can scale to the needs
of larger organizations.
We will continue to license technologies from third parties that are integrated into certain of our solutions.
Intellectual Property and Other Proprietary Rights
To protect our intellectual property, we rely on a combination of patent, trademark, copyright, and trade secret laws in
various jurisdictions, as well as employee and third-party nondisclosure agreements and confidentiality procedures. We
have a number of registered trademarks, including “Blackbaud,” “Raiser's Edge NXT” and “Luminate.” We have applied
for additional trademarks. We currently have three active patents on our technology, and have a total of three pending
patent applications.
2016 Form 10-K
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Blackbaud, Inc.
Employees
As of December 31, 2016, we had 3,156 employees, none of which are represented by unions or are covered by collective
bargaining agreements. We are not involved in any material disputes with any of our employees, and we believe that
relations with our employees are satisfactory.
Seasonality
For a discussion of seasonal variations in our business, see “Management’s discussion and analysis of financial conditions
and results of operations — Seasonality” in Item 7 in this report.
Financial Information about Geographic Areas
For information about revenues by geographic region and long-lived assets by geographic region, please see Note 16 to
our consolidated financial statements in this report. For a description of risks associated with our non-U.S. operations,
please see “Risk Factors - If we do not successfully address the risks inherent in the expansion of our international operations,
our business could suffer” in Item 1A in this report.
Working Capital
For a discussion of our working capital practices, see “Management’s Discussion and Analysis of Financial Conditions and
Results of Operations — Liquidity and Capital Resources” in Item 7 in this report.
Available Information
Our website address is www.blackbaud.com. We make available, free of charge through our website, our annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports pursuant
to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the SEC, but other information on our website is not incorporated into this report. The SEC maintains
an Internet site that contains these reports at www.sec.gov. The public may read and copy any materials we file with the
SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information
on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Executive Officers of the Registrant
The following table sets forth information concerning our executive officers as of February 15, 2017:
Name
Michael P. Gianoni
Anthony W. Boor
Charles T. Cumbaa(1)
Kevin W. Mooney
Brian E. Boruff
John J. Mistretta
Age
56
54
64
58
57
61
Title
President and Chief Executive Officer
Executive Vice President and Chief Financial Officer
Executive Vice President of Corporate and Product Strategy
Executive Vice President and President, General Markets Business Unit
Executive Vice President and President, Enterprise Customer Business Unit
Executive Vice President of Human Resources
(1)
In May 2016, we announced that Mr. Cumbaa will retire from the Company effective March 31, 2017. In the interim, Mr. Cumbaa will continue
in his current position and will assist management with the transition of his responsibilities.
Michael P. Gianoni joined us as President and Chief Executive Officer in January 2014. Prior to joining us, he served as
Executive Vice President and Group President, Financial Institutions at Fiserv, Inc., a global technology provider serving the
financial services industry, from January 2010 to December 2013. He joined Fiserv as President of its Investment Services
division in December 2007. Mr. Gianoni was Executive Vice President and General Manager of CheckFree Investment
Services, which provided investment management solutions to financial services organizations, from June 2006 until
December 2007 when CheckFree was acquired by Fiserv. From May 1994 to November 2005, he served as Senior Vice
President of DST Systems Inc., a global provider of technology-based service solutions. Mr. Gianoni is a member of the
Board of Directors of Teradata Corporation, a publicly traded global big data analytics and marketing applications company.
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2016 Form 10-K
Blackbaud, Inc.
Mr. Gianoni has served on several nonprofit boards across several segments, including relief organizations, hospitals, and
higher education. He currently is a board member of the International African American Museum. He holds an AS in
electrical engineering from Waterbury State Technical College, a BS with a business concentration from Charter Oak State
College, and an MBA and an honorary Doctorate, from the University of New Haven.
Anthony W. Boor joined us as Executive Vice President and Chief Financial Officer in November 2011 and served as our
interim President and Chief Executive Officer from August 2013 to January 2014. Prior to joining us, he served as an
executive with Brightpoint, Inc., a global provider of device lifecycle services to the wireless industry, beginning in 1999,
most recently as its Executive Vice President, Chief Financial Officer and Treasurer. He also served as the interim President
of Europe, Middle East and Africa during Brightpoint's significant restructuring of that region. Mr. Boor served as Director
of Business Operations for Brightpoint North America from August 1998 to July 1999. Prior to joining Brightpoint, Mr.
Boor was employed in various financial positions with Macmillan Computer Publishing, Inc., a Viacom owned book
publishing company specializing in computer hardware and software related topics, Day Dream Publishing, Inc., a publishing
company specializing in calendars, posters and time management materials, Ernst & Young LLP, an accounting firm, Expo
New Mexico, a state-owned fair and expo grounds and live pari-mutual horse racing venue, KPMG LLP, an accounting
firm, and Ernst & Whinney LLP, an accounting firm. He holds a BS in Accounting from New Mexico State University.
Charles T. Cumbaa has served as our Executive Vice President of Corporate and Product Strategy since May 2012. He
joined us in May 2001 and served as Senior Vice President of Products and Services until December 2009. He also served
as our President, Enterprise Customer Business Unit from January 2010 to April 2012. Prior to joining us, Mr. Cumbaa was
Executive Vice President with Intertech Information Management, a provider of document management solutions, from
December 1998 until October 2000. From 1992 until 1998, he was President and Chief Executive Officer of Cognitech,
Inc., a software company he founded. From 1984 to 1992 he was Executive Vice President of Sales and Services at Sales
Technologies, a sales force automation company. Prior to that, he was employed by McKinsey & Company, a consulting
firm. Mr. Cumbaa holds a BA from Mississippi State University and an MBA from Harvard Business School.
Kevin W. Mooney has served as our Executive Vice President and President, General Markets Business Unit since January
2010. He joined us in July 2008 as our Chief Commercial Officer. Before joining Blackbaud, Mr. Mooney was a senior
executive at Travelport GDS from August 2007 to May 2008. As Chief Commercial Officer of Travelport GDS, one of the
world's largest providers of information services and transaction processing to the travel industry, Mr. Mooney was
responsible for global sales, marketing, training, service and support activities. Prior to that he was Chief Financial Officer
for Worldspan from March 2005 until it was acquired by Travelport in August 2007. Mr. Mooney has also held key executive
positions in the telecommunications industry and he is a member of the Board of Directors of Level 3 Communications,
Inc., a publicly traded global managed network services company. Mr. Mooney graduated from Seton Hall University and
holds an MBA in Finance from Georgia State University.
Brian E. Boruff joined us as our Executive Vice President and President, Enterprise Customer Business Unit in May 2015. Prior
to joining us, Mr. Boruff was the Vice President of Products, Platforms and Solutions at Infosys, a global provider of consulting
technology and next-generation services, from June 2013 until April 2015. From May 2011 until June 2013 he was a
Managing Director of Accenture, a global management consulting and technology services company. From January 2009
until May 2011, Mr. Boruff was the Global Vice President of Cloud Computing and Emerging Technologies at CSC, a global
provider of information technology services and solutions. Prior to that, Mr. Boruff spent 15 years at Microsoft, a platform
and productivity company, from July 1993 until September 2008 where he held various domestic and international executive
roles as well as client-facing software sales and services roles. Mr. Boruff holds a BA in Computer Science and Biochemistry
from the University of Tennessee.
John J. Mistretta joined us as our Executive Vice President of Human Resources in August 2005. Prior to joining us,
Mr. Mistretta was an Executive Vice President of Human Resources and Alternative Businesses at National Commerce
Financial Corporation, a financial services company, from 1998 to 2005. Earlier in his career, Mr. Mistretta held various
senior Human Resources positions over a thirteen-year period at the banking firm Citicorp. He also serves as a board
member for YEScarolina, a local nonprofit dedicated to teaching youth the principles of entrepreneurship and free enterprise.
Mr. Mistretta holds a MS in Counseling and a BA in Psychology from the State University of New York at Oswego.
2016 Form 10-K
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Blackbaud, Inc.
ITEM 1A. RISK FACTORS
Our business operations face a number of risks. These risks should be read and considered with other information provided
in this report.
Our failure to compete successfully could cause our revenue or market share to decline.
Our market is highly competitive and rapidly evolving and there are limited barriers to entry for some aspects of this market.
The companies we compete with and other potential competitors may have greater financial, technical and marketing
resources and generate greater revenue and better name recognition than we do. Also, a large diversified software enterprise
could decide to enter the market directly, including through acquisitions. Competitive pressures can adversely impact our
business by limiting the prices we can charge our customers and making the adoption and renewal of our solutions more
difficult.
Our competitors might also establish or strengthen cooperative relationships with resellers and third-party consulting firms
or other parties with whom we have had relationships, thereby limiting our ability to promote our solutions. These
competitive pressures could cause our revenue and market share to decline.
Because a significant portion of our revenue is recognized ratably over the terms of the contract, downturns
in sales may not be immediately reflected in our revenue.
We recognize our maintenance and subscriptions revenue monthly over the term of the customer agreement. Most of our
maintenance arrangements are for a one-year term. Our subscription arrangements are typically either for a one-year term
or a three-year term. As a result, much of the revenue we report in each quarter is attributable to arrangements entered
into during previous quarters. Consequently, a decline in sales to new customers, renewals by existing customers or market
acceptance of our solutions in any one quarter will not necessarily be fully reflected in the revenues in that quarter and
will negatively affect our revenues and profitability in future quarters.
If our customers do not renew their annual maintenance and support arrangements or subscriptions for our
solutions or if they do not renew them on terms that are favorable to us, our business might suffer.
Most of our maintenance arrangements are for a one-year term. Our subscription arrangements are typically either for a
one-year term or a three-year term. As the end of the annual period approaches, we seek the renewal of the agreement
with the customer. Historically, maintenance and subscriptions renewals have represented a significant portion of our total
revenue. Because of this characteristic of our business, if our customers choose not to renew their maintenance and support
arrangements or subscriptions with us on beneficial terms or at all, our business, operating results and financial condition
could be harmed. Our customers' renewal rates may decline or fluctuate as a result of a number of factors, including their
level of satisfaction with our solutions and services and their ability to continue their operations and spending levels.
Defects, delays or interruptions in our cloud-based solutions and hosting services could diminish demand for
these services and subject us to substantial liability.
We currently utilize data center hosting facilities to provide cloud-based solutions to some of our subscription customers
and hosting services to our on-premise license customers. Any damage to, or failure of, our data center systems generally
could result in interruptions in service to our customers, notwithstanding any disaster recovery agreements that may
currently be in place at these facilities. Because our cloud-based solutions and hosting service offerings are complex, and
we have incorporated a variety of new computer hardware and software systems at our data centers, our services might
have errors or defects that users identify after they begin using our services. This could result in unanticipated downtime
for our customers and harm to our reputation and business. Internet-based services sometimes contain undetected errors
when first introduced or when new versions or enhancements are released. We have from time to time found defects in
our web-based services and new errors might again be detected in the future. In addition, our customers might use our
Internet-based offerings in unanticipated ways that cause a disruption in service for other customers attempting to access
their data.
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2016 Form 10-K
Blackbaud, Inc.
Because our customers use these services for important aspects of their businesses, any defects, delays or disruptions in
service or other performance problems with our services could hurt our reputation and damage our customers' businesses.
If that occurs, customers could elect to cancel their service, delay or withhold payment to us, not purchase from us in the
future or make claims against us, which could result in an increase in our provision for doubtful accounts, an increase in
collection cycles for accounts receivable or the expense and risk of litigation. Any of these could harm our business and
reputation.
Material defects or errors in the software we use to deliver our services could harm our reputation, result in
significant costs to us and impair our ability to sell our services.
The software applications underlying our services are inherently complex and may contain material defects or errors,
particularly when first introduced or when new versions or enhancements are released. We have from time to time found
defects in our software, and new errors in our existing software may be detected in the future.
After the release of our software, defects or errors may also be identified from time to time by our internal team and our
customers. The costs incurred in correcting any material defects or errors in our software may be substantial and could
harm our operating results. Furthermore, our customers may use our software together with solutions from other companies.
As a result, when problems occur, it might be difficult to identify the source of the problem. Even when our software does
not cause these problems, the existence of these errors might cause us to incur significant costs, divert the attention of
our technical personnel from our solution development efforts, impact our reputation and cause significant customer
relations problems.
Our failure to obtain licenses for third-party technologies could harm our business.
We expect to continue licensing technologies from third parties, including applications used in our research and development
activities, technologies which are integrated into our solutions and solutions that we resell. We believe that the loss of any
third-party technologies currently integrated into our solutions could have a material adverse effect on our business. Our
inability in the future to obtain any third-party licenses on commercially reasonable terms, or at all, could delay future
solution development until equivalent technology can be identified, licensed or developed and integrated. This inability in
turn could harm our business and operating results. Our use of third-party technologies exposes us to increased risks
including, but not limited to, risks associated with the integration of new technology into our solutions, the diversion of
our resources from development of our own proprietary technology and our inability to generate revenue from licensed
technology sufficient to offset associated acquisition and maintenance costs.
The market for software and services for nonprofit, charitable giving and educational organizations might not
grow and these organizations might not continue to adopt our solutions and services.
Many nonprofit organizations have not traditionally used integrated and comprehensive software and services for their
nonprofit-specific needs. We cannot be certain that the market for such solutions and services will continue to develop
and grow or that nonprofit organizations will elect to adopt our solutions and services rather than continue to use traditional,
less automated methods, attempt to develop software internally, rely upon legacy software systems, or use software
solutions not specifically designed for the nonprofit market. Nonprofit organizations that have already invested substantial
resources in other fundraising methods or other non-integrated software solutions might be reluctant to adopt our solutions
and services to supplement or replace their existing systems or methods. In addition, the implementation of one or more
of our core software solutions can involve significant time and capital commitments by our customers, which they may be
unwilling or unable to make. If demand for and market acceptance of our solutions and services does not increase, we
might not grow our business as we expect.
If we are unable, or our customers believe we are unable, to detect and prevent unauthorized use of payment
card information and safeguard confidential donor data, we could be subject to financial liability, our reputation
could be harmed and customers may be reluctant to use our solutions and services.
The rules of payment card associations in which we participate require that we comply with Payment Card Industry Data
Security Standard ("PCI DSS") in order to preserve security of payment card data. Under PCI DSS, we are required to adopt
and implement internal controls over the use, storage and security of payment card data to help prevent card fraud.
Conforming our solutions and services to PCI DSS or other payment services related regulations or requirements imposed
2016 Form 10-K
17
Blackbaud, Inc.
by payment networks or our customers or payment processing partners is expensive and time-consuming. However, failure
to comply may subject us to fines, penalties, damages and civil liability, may impair the security of payment card data in
our possession, and may harm our reputation and our business prospects, including by limiting our ability to process
transactions. All of our solutions are currently certified as compliant with the Payment Application Data Security Standard,
which is a subset of the requirements for PCI DSS. However, currently some of our solutions are not fully compliant with
PCI DSS.
If the security of our software is breached, we fail to securely collect, store and transmit customer information,
or we fail to safeguard confidential donor data, we could be exposed to liability, litigation, penalties and
remedial costs and our reputation and business could suffer.
Fundamental to the use of our solutions is the secure collection, storage and transmission of confidential donor and end
user data and transaction data, including in our payment processing business. Despite, the network and application security,
internal control measures, and physical security procedures we employ to safeguard our systems, we may still be vulnerable
to a security breach, intrusion, loss or theft of confidential donor data and transaction data, which may harm our business,
reputation and future financial results.
A compromise of our data security that results in customer or donor personal or payment card data being obtained by
unauthorized persons could adversely affect our reputation with our customers and others, as well as our operations,
results of operations, financial condition and liquidity and could result in litigation against us or the imposition of penalties.
We might be required to expend significant capital and other resources to protect further against security breaches or to
rectify problems caused by any security breach, including notification under data privacy laws and regulations and expenses
related to remediating our information security systems. Even though we carry cyber-technology insurance policies that
may provide insurance coverage under certain circumstances, we might suffer losses as a result of a security breach that
exceed the coverage available under our insurance policies or for which we do not have coverage. A security breach and
any efforts we make to address such breach could also result in a disruption of our operations, particularly our online sales
operations.
Further, the existence of vulnerabilities, even if they do not result in a security breach, may harm client confidence and
require substantial resources to address, and we may not be able to discover or remedy such security vulnerabilities before
they are exploited, which may harm our business, reputation and future financial results.
Privacy and data protection concerns, including evolving government regulation in the area of consumer data
privacy or data protection, could adversely affect our business and operating results.
The effectiveness of our software solutions relies on our customers' storage and use of data concerning their customers,
including financial, personally identifying or other sensitive data. Our customers' collection and use of this data for donor
profiling, data analytics or communications outreach might raise privacy and data protection concerns and negatively
impact the demand for our solutions and services. For example, our custom modeling and analytical services, including
ProspectPoint, WealthPoint and donorCentrics, rely heavily on processing and using of data we gather from customers
and various sources. Privacy and data protection laws could restrict or add regulatory and compliance processes to our
ability to market and profit from those services.
Governments in some jurisdictions have enacted or are considering enacting consumer data privacy or data protection
legislation, including laws and regulations applying to the solicitation, collection, transfer, processing and use of personal
data. This legislation could reduce the demand for our software solutions if we fail to design or enhance our solutions to
enable our customers to comply with the privacy and data protection measures required by the legislation. Moreover, we
may be exposed to liability under existing or new consumer privacy or data protection legislation. For example, we must
comply with applicable provisions of the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), and might
be subject to similar provisions of the Gramm-Leach-Bliley Act and related regulations. Even technical violations of these
laws may result in penalties that are assessed for each non-compliant transaction.
If our customers or we were found to be subject to and in violation of any privacy or data protection laws or regulations,
our business may be materially and adversely impacted and we and/or our customers would likely have to change our
business practices. In addition, these laws and regulations could impose significant costs on our customers and us and
make it more difficult for donors to make online donations.
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2016 Form 10-K
Blackbaud, Inc.
We are in the information technology business, and our solutions and services store, retrieve, transfer, manipulate and
manage our customers’ information and data. The effectiveness of our software solutions relies on our customers’ storage
and use of data concerning their donors, including financial, personally identifying and other sensitive data and our business
uses similar systems that require us to store and use data with respect to our customers and personnel. Our collection and
our customers’ collection and use of this data might raise privacy and data protection concerns and negatively impact our
business or the demand for our solutions and services. If a breach of data security were to occur, or other violation of
privacy or data protection laws and regulations were to be alleged, our business may be materially and adversely impacted
and solutions may be perceived as less desirable, which would negatively affect our business and operating results.
If we fail to respond to technological changes and successfully introduce new and improved solutions, our
competitive position may be harmed and our business may suffer.
The introduction of solutions encompassing new technologies can render existing solutions obsolete and unmarketable.
As a result, our future success will depend, in part, upon our ability to continue to enhance existing solutions and develop
and introduce in a timely manner or acquire new solutions that keep pace with technological developments, satisfy
increasingly sophisticated customer requirements and achieve market acceptance. If we are unable to develop or acquire
on a timely and cost-effective basis new software solutions or enhancements to existing solutions or if such new solutions
or enhancements do not achieve market acceptance, our business, results of operations and financial condition may be
materially adversely affected.
Because competition for highly qualified personnel is intense, we might not be able to attract and retain key
personnel needed to support our planned growth.
To meet our objectives successfully, we must attract and retain highly qualified personnel with specialized skill sets. If we
are unable to attract suitably qualified management, there could be a material adverse impact on our business.
Further, in the past, we have used equity incentive programs as part of our overall employee compensation agreements
to both attract and retain personnel. A decline in our stock price could negatively impact the value of these equity incentive
and related compensation programs as retention and recruiting tools. We may need to create new or additional equity
incentive programs and/or compensation packages to remain competitive, which could be dilutive to our existing
stockholders and/or adversely affect our results of operations.
If we do not successfully address the risks inherent in the expansion of our international operations, our business
could suffer.
We currently have non-U.S. operations in Canada, the United Kingdom, Ireland, Australia and New Zealand, and we intend
to expand further into international markets. Expansion of our international operations will require a significant amount
of attention from our management and substantial financial resources and might require us to add qualified management
in these markets. Our direct sales model requires us to attract, retain and manage qualified sales personnel capable of
selling into markets outside the United States. In some cases, our costs of sales might increase if our customers require us
to sell through local distributors.
If we are unable to grow our international operations in a cost-effective and timely manner, our business and operating
results could be harmed. Doing business internationally involves additional risks that could harm our operating results.
We expect that an increasing portion of our international revenues will be denominated in foreign currencies, subjecting
us to fluctuations in foreign currency exchange rates. If we expand our international operations, exposures to gains and
losses on foreign currency transactions may increase.
Acquisitions could prove difficult to integrate, disrupt our business, dilute stockholder value and strain our
resources.
As part of our business strategy, we have made acquisitions in the past. The successful integration of acquired companies
requires, among other things, coordination of various departments, including solution development, engineering, sales
and marketing and finance, as well as integration in our system of internal controls. Acquisitions and investments involve
numerous risks.
2016 Form 10-K
19
Blackbaud, Inc.
Acquisitions also frequently result in recording of goodwill and other intangible assets, which are subject to potential
impairments in the future that could harm our operating results. In addition, if we finance acquisitions by issuing equity
securities or securities convertible into equity securities, our existing stockholders would be diluted which, in turn, could
affect the market price of our stock. Moreover, we could finance any acquisition with debt, resulting in higher leverage
and interest costs. As a result, if we fail to evaluate and execute acquisitions or investments properly, we might not achieve
the anticipated benefits of any such acquisition and we may incur costs in excess of what we anticipate. Furthermore, if
we incur additional debt to fund acquisitions and are unable to service our debt obligation we may have a greater risk of
default under our credit facility.
The success of our acquisitions will depend in part on our ability to retain their engineering, sales, marketing, development
and other personnel. It is possible that these employees might decide to terminate their employment. If key employees
terminate their employment, the sales, marketing or development activities of acquired companies might be adversely
affected, our management's attention might be diverted from successfully integrating the acquired operations to hiring
suitable replacements and, as a result, our business might suffer.
We significantly increased our leverage in connection with acquisitions.
We incurred a substantial amount of indebtedness in connection with recent acquisitions. As a result of this indebtedness,
our interest payment obligations have increased. The degree to which we are leveraged could have adverse effects on our
business, including the following:
• Requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness,
thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions,
dividends and other general corporate purposes;
•
Limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we
operate;
• Restricting us from making additional strategic acquisitions or exploiting business opportunities;
•
•
Placing us at a competitive disadvantage compared to our competitors that have less debt;
Limiting our ability to borrow additional funds; and
• Decreasing our ability to compete effectively or operate successfully under adverse economic and industry
conditions.
If we incur additional debt, these risks may intensify. Our ability to meet our debt service obligations will depend upon our
future performance, which will be subject to the financial, business and other factors affecting our operations, many of
which are beyond our control.
Our balance sheet includes significant amounts of goodwill and intangible assets. The impairment of a significant
portion of these assets could negatively affect our operating results.
As of December 31, 2016, we had $438.2 million and $253.7 million of goodwill and intangible assets, respectively. On
at least an annual basis, we assess whether there have been impairments in the carrying value of goodwill and intangible
assets. If the carrying value of an asset is determined to be impaired, then it is written down to fair value by a non-cash
charge to operating earnings. Changes in circumstances that could indicate that the carrying value of goodwill or intangible
assets may not be recoverable include declines in our stock price, market capitalization, cash flows and slower growth
rates in our industry. We cannot accurately predict the likelihood or potential amount and timing of any impairment of
goodwill or other intangible assets. An impairment of a significant portion of goodwill or intangible assets could materially
and negatively affect our results of operations and financial condition.
Restrictions in our credit facility may limit our activities, including dividend payments, share repurchases and
acquisitions.
Our credit facility contains restrictions, including covenants limiting our ability to incur additional debt, grant liens, make
acquisitions and other investments, prepay specified debt, consolidate, merge or acquire other businesses, sell assets, pay
dividends and other distributions, repurchase stock and enter into transactions with affiliates. There can be no assurance
20
2016 Form 10-K
Blackbaud, Inc.
that we will be able to remain in compliance with the covenants to which we are subject in the future and, if we fail to
do so, that we will be able to obtain waivers from our lenders or amend the covenants.
In the event of a default under our credit facility, we could be required to immediately repay all outstanding borrowings,
which we might not be able to do. In addition, certain of our material domestic subsidiaries will be required to guarantee
amounts borrowed under the credit facility, and we have pledged the shares of certain of our subsidiaries as collateral for
our obligations under the credit facility. Any such default could have a material adverse effect on our ability to operate,
including allowing lenders under the credit facility to enforce guarantees of our subsidiaries, if any, or exercise their rights
with respect to the shares pledged as collateral.
We have recorded significant deferred tax assets, and we might never realize their full value, which would
result in a charge against our earnings.
As of December 31, 2016, we had deferred tax assets of $55.8 million. Realization of our deferred tax assets is dependent
upon our generating sufficient taxable income in future years to realize the tax benefit from those assets. Deferred tax
assets are reviewed at least annually for realizability. A charge against our earnings would result if, based on the available
evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. This could be caused
by, among other things, deterioration in performance, loss of key contracts, adverse market conditions, adverse changes
in applicable laws or regulations, including changes that restrict the activities of or affect the solutions sold by our business
and a variety of other factors. If a deferred tax asset was determined to be not realizable in a future period, the charge to
earnings would be recognized as an expense in our results of operations in the period the determination is made. Additionally,
if we are unable to utilize our deferred tax assets, our cash flow available to fund operations could be adversely affected.
Depending on future circumstances, it is possible that we might never realize the full value of our deferred tax assets. Any
future determination of impairment of a significant portion of our deferred tax assets would have an adverse effect on our
financial condition and results of operations.
Claims that we or our technologies infringe upon the intellectual property or other proprietary rights of a third
party may require us to incur significant costs, enter into royalty or licensing agreements or develop or license
substitute technology.
We may be subject to claims that our technologies in our solutions and services infringe upon the intellectual property or
other proprietary rights of a third party. In addition, the vendors providing us with technology that we use in our own
technology could become subject to similar infringement claims. Although we believe that our solutions and services do
not infringe any intellectual property or other proprietary rights, we cannot be certain that our solutions and services do
not, or that they will not in the future, infringe intellectual property or other proprietary rights held by others. Any claims
of infringement could cause us to incur substantial costs defending against the claim, even if the claim is without merit,
and could distract our management from our business. Moreover, any settlement or adverse judgment resulting from the
claim could require us to pay substantial amounts, or obtain a license to continue to use the solutions and services that
are the subject of the claim, and/or otherwise restrict or prohibit our use of the technology. There can be no assurance
that we would be able to obtain a license on commercially reasonable terms from the third party asserting any particular
claim, or that we would be able to successfully develop alternative technology on a timely basis, or that we would be able
to obtain a license from another provider of suitable alternative technology to permit us to continue offering, and our
customers to continue using, the solutions and services. In addition, we generally provide in our customer arrangements
for certain solutions and services that we will indemnify our customers against third-party infringement claims relating to
technology we provide to those customers, which could obligate us to pay damages if the solutions and services were
found to be infringing. Infringement claims asserted against us, our vendors or our customers may have a material adverse
effect on our business, prospects, financial condition and results of operations.
Our solutions utilize open source software, which may subject us to litigation, require us to re-engineer our
solutions, or otherwise divert resources away from our development efforts.
We use open source software in connection with certain of our solutions. Such open source software is generally licensed
by its authors or other third parties under open source licenses, including, for example, the GNU General Public License,
the GNU Lesser General Public License, “Apache-style” licenses, “BSD-style” licenses and other open source licenses. There
is little legal precedent governing the interpretation of many of the terms of some of these licenses, and therefore the
2016 Form 10-K
21
Blackbaud, Inc.
potential impact of these terms on our business is currently unable to be determined and may result in unanticipated
obligations regarding our solutions and technologies. From time to time, companies that incorporate open source software
into their products have faced claims challenging the ownership of open source software and/or compliance with open
source license terms. Therefore, we could be subject to litigation by parties claiming ownership of open source software
or noncompliance with open source licensing terms. Some open source software licenses require users who distribute open
source software as part of their own software to publicly disclose all or part of the source code to such software and/or
make available any derivative works of the open source code on unfavorable terms or at no cost. While we monitor our
use of open source software and try to ensure that none is used in a manner that would require us to disclose the source
code or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur and we
may be required to release proprietary source code, pay damages for breach of contract, re-engineer our applications,
discontinue sales in the event re-engineering cannot be accomplished on a timely basis, or take other remedial action that
may divert resources away from our development efforts, any of which could adversely affect our business.
We rely upon trademark, copyright, patent and trade secret laws to protect our proprietary rights, which might
not provide us with adequate protection.
Our success and ability to compete depends to a significant degree upon the protection of our proprietary technology
rights. We might not be successful in protecting our proprietary technology and our proprietary rights might not provide
us with a meaningful competitive advantage. To protect our core proprietary technology, we rely on a combination of
patent, trademark, copyright and trade secret laws, as well as nondisclosure agreements, each of which affords only limited
protection.
Increasing and evolving government regulation could affect our business.
Pending and enacted legislation at the state and federal levels, including those related to taxation, fundraising activities
and payment processing, may also restrict further our information gathering and disclosure practices, for example, by
requiring us to comply with extensive and costly registration, reporting or disclosure requirements. Any substantial increase
in government regulation affecting our business, or any failure to comply with existing regulations, could require substantial
investments to achieve compliance, which could adversely affect our operating results and financial condition.
Our operations might be affected by the occurrence of a natural disaster or other catastrophic event.
We depend on our principal executive offices and other facilities for the continued operation of our business. Although
we have contingency plans in effect for natural disasters or other catastrophic events, these events, including terrorist
attacks, computer hacker attacks and natural disasters such as hurricanes and earthquakes, could disrupt one or more of
these facilities and adversely affect our operations. Our principal executive offices are located in a coastal region that has
experienced hurricanes in the past. Even though we carry business interruption insurance policies and typically have
provisions in our commercial contracts that protect us in certain events, we might suffer losses as a result of business
interruptions that exceed the coverage available under our insurance policies or for which we do not have coverage. Any
natural disaster or catastrophic event affecting us could have a significant negative impact on our operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We lease our headquarters in Charleston, South Carolina which consists of approximately 218,000 square feet. The lease
on our Charleston headquarters expires in October 2023, and we have the option for two 5-year renewal periods. Please
also see discussion about the construction of our new headquarters facility in Note 11 to our consolidated financial
statements in this report.
We also lease additional office space in Charleston, South Carolina; Austin, Texas; Indianapolis, Indiana; Cambridge,
Massachusetts; Washington D.C.; San Diego and Emeryville, California; Overland Park, Kansas; Lincoln, Nebraska; Bedford,
New Hampshire; Edina, Minnesota; New York, New York; Middlesex, New Jersey; Toronto, Canada; Glasgow, Scotland;
22
2016 Form 10-K
Blackbaud, Inc.
Dublin, Ireland; London, England; Brisbane, Australia; and Sydney, Australia. We believe that our properties are in good
operating condition and adequately serve our current business operations for all of our business segments. We also anticipate
that suitable additional or alternative space, including those under lease options, will be available at commercially reasonable
terms for future expansion.
ITEM 3. LEGAL PROCEEDINGS
From time to time we may become involved in litigation relating to claims arising from our ordinary course of business.
We do not believe that there are any claims or actions pending or threatened against us, the ultimate disposition of which
would have a material adverse effect on us.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
2016 Form 10-K
23
Blackbaud, Inc.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Our common stock is trading on the NASDAQ Stock Market LLC (“NASDAQ”) under the symbol “BLKB.” The following
table sets forth, for the quarterly reporting periods indicated, the high and low market prices for shares of our common
stock, as reported by NASDAQ, and dividend per share information.
Fiscal year ended December 31, 2016
Fourth quarter
Third quarter
Second quarter
First quarter
Fiscal year ended December 31, 2015
Fourth quarter
Third quarter
Second quarter
First quarter
Common Stock
Market Prices
High
Low
Dividends
Declared
$
67.42 $
58.29 $
71.09
68.40
65.33
64.32
58.36
50.97
$
67.54 $
56.17 $
63.73
59.67
47.45
54.10
47.39
42.00
0.12
0.12
0.12
0.12
0.12
0.12
0.12
0.12
As of February 6, 2017, there were approximately 138 stockholders of record of our common stock. Because many of our
shares of common stock are held by brokers and other institutions on behalf of stockholders, this number is not representative
of the total number of stockholders represented by these stockholders of record. On February 6, 2017, the closing price
of our common stock was $64.76.
24
2016 Form 10-K
Blackbaud, Inc.
Stock Performance Graph
The following performance graph shall not be deemed to be “soliciting material” or “filed” or incorporated by reference
in future filings with the SEC, or subject to the liabilities of Section 18 of the Exchange Act except as shall be expressly set
forth by specific reference in such filing. The performance graph compares the performance of our common stock to the
NASDAQ Composite Index and the NASDAQ Computer and Data Processing Index. The graph covers the most recent five-
year period ending December 31, 2016. The graph assumes that the value of the investment in our common stock and
each index was $100.00 at December 31, 2011, and that all dividends are reinvested.
December 31,
Blackbaud, Inc.
2011
2012
2013
2014
2015
2016
$ 100.00 $
83.97 $ 140.59 $ 163.70 $ 251.47 $ 246.25
NASDAQ Composite Index
NASDAQ Computer & Data Processing Index
100.00
100.00
116.41
107.40
165.47
164.63
188.69
189.15
200.32
223.06
216.54
242.34
2016 Form 10-K
25
Blackbaud, Inc.
Common Stock Acquisitions and Repurchases
The following table provides information about shares of common stock acquired or repurchased during the three months
ended December 31, 2016. All of these acquisitions were of common stock withheld by us to satisfy minimum tax obligations
of employees due upon exercise of stock appreciation rights and vesting of restricted stock awards and units. The level of
acquisition activity varies from period to period based upon the timing of grants and vesting as well as employee exercise
decisions.
Period
Beginning balance, October 1, 2016
October 1, 2016 through October 31, 2016
November 1, 2016 through November 30, 2016
December 1, 2016 through December 31, 2016
Total
number
of shares
purchased
— $
82,056
—
Average
price
paid
per
share
—
59.48
—
Total number
of shares
purchased as
part of
publicly
announced
plans or
programs(1)
Approximate
dollar value
of shares
that may yet
be purchased
under the
plans or
programs
(in thousands)
50,000
$
—
—
—
50,000
50,000
50,000
50,000
Total
82,056 $
59.48
— $
(1)
In August 2010, our Board of Directors approved a stock repurchase program that authorized us to purchase up to $50.0 million of our
outstanding shares of common stock. We have not made any repurchases under the program to date, and the program does not have an
expiration date.
Dividend Policy
Our Board of Directors has adopted a dividend policy which reflects an intention to distribute to our stockholders a portion
of the cash generated by our business that exceeds our operating needs and capital expenditures as regular quarterly
dividends. This policy reflects our judgment that we can provide greater value to our stockholders by distributing to them
a portion of the cash generated by our business.
In accordance with this dividend policy, we paid quarterly dividends at an annual rate of $0.48 per share in 2016 and 2015,
resulting in aggregate dividend payments to stockholders of $22.8 million and $22.5 million in 2016 and 2015, respectively.
In February 2017, our Board of Directors approved an annual dividend rate of $0.48 per share for 2017. We declared a
first quarter dividend of $0.12 per share payable on March 15, 2017, to stockholders of record on February 28, 2017, and
currently intend to pay quarterly dividends at an annual rate of $0.48 per share of common stock for each of the remaining
fiscal quarters in 2017.
Dividends on our common stock will not be cumulative. Consequently, if dividends on our common stock are not declared
and/or paid at the targeted level, our stockholders will not be entitled to receive such payments in the future. We are not
obligated to pay dividends, and as described more fully below, our stockholders might not receive any dividends as a result
of the following factors:
• Our credit facility limits the amount of dividends we are permitted to pay;
• Our Board of Directors could decide to reduce dividends or not to pay dividends at all, at any time and for any
reason;
•
The amount of dividends distributed is subject to state law restrictions (as discussed below); and
• We might not have enough cash to pay dividends due to changes to our operating earnings, working capital
requirements and anticipated cash needs.
We estimate that the cash necessary to fund dividends on our common stock for 2017 at an annual rate of $0.48 per
share is approximately $23.0 million (assuming 48.0 million shares of common stock are outstanding, net of treasury stock).
Assumptions and Considerations
26
2016 Form 10-K
Blackbaud, Inc.
We have a stock repurchase program that authorizes us to purchase up to $50.0 million of our outstanding shares of
common stock. The program does not have an expiration date. The shares could be purchased in a self-tender for our
stock, from time to time on the open market or in privately negotiated transactions depending upon market conditions
and other factors, all in accordance with the requirements of applicable law. Any open market purchases under the
repurchase program will be made in compliance with Rule 10b-18 of the Securities Exchange Act of 1934 and all other
applicable securities regulations. We might not purchase any shares of common stock and our Board of Directors may
decide, in its absolute discretion, at any time and for any reason, to cancel the stock repurchase program.
We believe that our cash on hand and the cash flows we expect to generate from operations will be sufficient to meet our
liquidity requirements through 2017, including dividends and purchases under our stock repurchase program. See
“Management’s Discussion and Analysis of Financial Conditions and Results of Operations — Liquidity and Capital
Resources” in Item 7 in this report.
If our assumptions as to operating expenses, working capital requirements and capital expenditures are too low or if
unexpected cash needs arise that we are not able to fund with cash on hand or with borrowings under our credit facility,
we would need to either reduce or eliminate dividends. If we were to use working capital or permanent borrowings to
fund dividends, we would have less cash available for future dividends and other purposes, which could negatively impact
our stock price, financial condition, results of operations and ability to maintain or expand our business.
We have estimated our dividend only for 2017, and we cannot assure our stockholders that during or following 2017 we
will pay dividends at the estimated levels, or at all except with regard to dividends previously declared by the Board of
Directors but not yet paid. We are not required to pay dividends and our Board of Directors may modify or revoke our
dividend policy at any time. Dividend payments are within the absolute discretion of our Board of Directors and will be
dependent upon many factors and future developments that could differ materially from our current expectations. Over
time, our capital and other cash needs, including unexpected cash needs, will invariably change and remain subject to
uncertainties, which could impact the level of any dividends we pay in the future.
We believe that our dividend policy could limit, but not preclude, our ability to pursue growth as we intend to retain
sufficient cash after the distribution of dividends to permit the pursuit of growth opportunities. In order to pay dividends
at the level currently anticipated under our dividend policy and to fund any substantial portion of our stock repurchase
program, we could require financing or borrowings to fund any significant acquisitions or to pursue growth opportunities
requiring capital significantly beyond our anticipated levels. Management will evaluate potential growth opportunities as
they arise and, if our Board of Directors determines that it is in our best interest to use cash that would otherwise be
available for distribution as dividends to pursue an acquisition opportunity, to materially increase capital spending or for
some other purpose, the Board would be free to depart from or change our dividend policy at any time.
Restrictions on Payment of Dividends
Under Delaware law, we can only pay dividends either out of “surplus” (which is defined as total assets at fair market
value minus total liabilities, minus statutory capital) or out of current or the immediately preceding year’s earnings. As of
December 31, 2016, we had $16.9 million in cash and cash equivalents. In addition, we anticipate that we will have
sufficient earnings in 2017 to pay dividends at the level described above. Although we believe we will have sufficient
surplus and earnings to pay dividends at the anticipated levels for 2017, our Board of Directors will seek periodically to
assure itself of this sufficiency before actually declaring any dividends.
Under our credit facility, we also have restrictions on our ability to declare and pay dividends and our ability to repurchase
shares of our common stock. In order to pay any cash dividends and/or repurchase shares of stock: (1) no default or event
of default shall have occurred and be continuing under the credit facility, and (2) our pro forma net leverage ratio, as set
forth in the credit agreement, must be 0.25 less than the net leverage ratio requirement at the time of dividend declaration
or share repurchase. See “Management’s Discussion and Analysis of Financial Conditions and Results of Operations —
Liquidity and Capital Resources” in Item 7 in this report.
2016 Form 10-K
27
Blackbaud, Inc.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in Item 7 in this report and our financial statements and the related notes
included elsewhere in this report to fully understand factors, including our business acquisitions and dispositions as well
as presentation of certain of our subscriptions revenues and costs on a gross basis effective October 2013, that may affect
the comparability of the information presented below.
The following data, insofar as it relates to each of the years ended December 31, 2016, 2015 and 2014, has been derived
from the audited annual financial statements, including the consolidated balance sheets at December 31, 2016 and 2015,
and the related consolidated statements of comprehensive income, cash flows and stockholders’ equity for the three years
ended December 31, 2016, 2015 and 2014 and notes thereto in Item 8 of this report. The following data, insofar as it
relates to each of the years ended December 31, 2013 and 2012, and the consolidated balance sheets as of December 31,
2014, 2013 and 2012 are derived from audited financial statements not included in this report.
(in thousands, except per share data)
2016
2015
2014
2013
2012
Year ending December 31,
SUMMARY OF OPERATIONS
Total revenue
Total cost of revenue
Gross profit
Total operating expenses
Income from operations
Net income
PER SHARE DATA
Basic net income
Diluted net income
Cash dividends
$
730,815 $
339,220
391,595
329,795
61,800
41,515
637,940 $
564,421 $
503,817 $
447,419
304,631
333,309
286,597
46,712
25,649
273,438
290,983
244,619
46,364
28,290
232,663
271,154
219,612
51,542
30,472
202,460
244,959
225,524
19,435
6,583
$
0.90 $
0.88
0.48
0.56 $
0.63 $
0.68 $
0.55
0.48
0.62
0.48
0.67
0.48
0.15
0.15
0.48
$ 1,310,210 $ 1,223,336 $
BALANCE SHEET DATA
Total assets(1)
Deferred revenue, including current portion
Total debt, including current portion(1)
Total long-term liabilities(1)
(1) As discussed in Note 2 of our consolidated financial statements included in this report, we adopted ASU 2015-03, Interest - Imputation of Interest
- Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03") on a retrospective basis. Accordingly, we retrospectively adjusted other non-
current assets and debt, net of current portion, which had the effect of reducing each of those respective line items in our consolidated balance
sheets as of December 31, 2015, 2014, 2013 and 2012 by approximately $0.5 million, $0.7 million, $0.6 million and $0.8 million, respectively.
706,025 $
942,503 $
152,323
221,274
190,574
335,583
187,799
279,891
408,087
245,594
185,018
214,726
382,549
704,973
342,393
250,940
446,450
237,335
28
2016 Form 10-K
Blackbaud, Inc.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with Item 1A Risk factors and our consolidated financial statements and related notes included
elsewhere in this Annual Report on Form 10-K. The following discussion and analysis presents financial
information denominated in millions of dollars which can lead to differences from rounding when compared
to similar information contained in the consolidated financial statements and related notes which are primarily
denominated in thousands of dollars.
Executive Summary
We are the world’s leading cloud software company powering social good. Serving the entire social good community—
nonprofits, foundations, corporations, education institutions, and individual change agents—we connect and empower
organizations to increase their impact through software, services, expertise, and data intelligence. Our portfolio is tailored
to the unique needs of vertical markets, with solutions for fundraising and relationship management, digital marketing,
advocacy, accounting, payments, analytics, school management, grant management, corporate social responsibility and
volunteerism. Serving the industry for more than three decades, we are headquartered in Charleston, South Carolina and
have operations in the United States, Australia, Canada, Ireland and the United Kingdom. As of December 31, 2016, we
had approximately 35,000 customers.
Our revenue is primarily generated from the following sources: (i) charging for the use of our software solutions in cloud-
based and hosted environments; (ii) providing software maintenance and support services; (iii) providing professional
services including implementation, training, consulting, analytic, hosting and other services; (iv) providing transaction and
payment processing services; and (v) selling perpetual licenses of our software solutions. We have experienced growth in
our payment processing services from the continued shift to online giving, further integration of these services to our
existing solution portfolio and the sale of these services to new and existing customers.
Our long-term aspirational financial goals include accelerating organic revenue growth, expanding our operating margins
and increasing our operating cash flows. In 2014, we introduced and began executing on a five-point growth strategy
targeted to achieve those goals and to drive an extended period of quality enhancement, solution and service innovation,
and increasing operating efficiency and financial performance. During 2016, the strategy evolved to account for progress
to date resulting in the combination of Streamline Operations and Execute our 3-Year Margin Improvement Plan into a
new initiative to Improve Operating Efficiency. Our updated strategy is as follows:
1.
Integrated and Open Solutions in the Cloud
We will continue to transition our business to predominantly serve customers through a subscription-based cloud
delivery model, enabling lower cost of entry, greater scalability and lower total cost of ownership to our customers.
There is a concerted effort underway to optimize our portfolio of solutions and integrate powerful capabilities —
such as built in data, analytics, payment processing and tailored user-specific experiences — to bring even greater
value and performance to our customers.
During 2016, we further expanded certain of our pre-integrated services through the general release of SKY
Reporting™, beginning with Raiser's Edge NXT. SKY Reporting provides new business intelligence and reporting
tools aimed at seamlessly delivering valuable insights and productivity enhancing capabilities to customers. We
also announced the general release of SKY API, a key component of Blackbaud SKY™, which is our new, innovative
cloud technology architecture for the global social good community that now powers six of our next generation
solutions. SKY API allows customers, partners, and application developers to extend functionality and integrate
with our solutions. For example, we announced the integration of Raiser's Edge NXT with the salesforce platform
through our SKI API’s.
We acquired Attentive.ly, a cloud software provider that provides social media capabilities allowing organizations
to conduct social listening, identify key influencers and drive engagement through its cloud solution. This acquisition
accelerates our ability to deliver these capabilities to our customers by integrating Attentive.ly technology into
2016 Form 10-K
29
Blackbaud, Inc.
Blackbaud SKY. We also made several portfolio announcements, ranging from solution integrations, to new
capabilities for existing solutions, to new solution introductions.
2. Drive Sales Effectiveness
We are making investments to increase the effectiveness of our sales organization, with a focus on enabling our
expanding sales teams with the talent, processes, and tools to accelerate our revenue growth and improve
effectiveness. Our customer success program separates account management from the sales organization, and is
intended to drive customer loyalty and retention.
In early 2016, we launched a value added reseller ("VAR") program. We continued to make investments in our
sales, marketing and customer success organizations and improved our market coverage by deploying these
resources into key markets like Toronto, where we opened a new office. In addition, we are continuing to optimize
our go-to-market sales strategies such as offering solutions and services tailored to the needs of customers operating
within vertical markets including K-12 private schools, foundations, higher education and healthcare institutions,
among others.
3. Expand TAM into Near Adjacencies with Acquisitions and Investments
We will continue to evaluate compelling opportunities to acquire companies, technologies and/or services. We
will be guided by our acquisition criteria for considering attractive assets that expand our total addressable market
("TAM"), provide entry into new and near adjacencies, accelerate our shift to the cloud, accelerate revenue growth,
are accretive to margins and present synergistic opportunities.
4.
Improve Operating Efficiency
We have largely completed the installations of best-in-breed back-office solutions that consolidate and standardize
our business operations utilizing scalable tools and systems. Our focus is now shifting towards optimizing those
systems, as well as operational excellence and quality initiatives focused on streamlining processes to gain efficiency
and scalability. In 2014, we implemented a 3-year operating margin improvement plan designed to increase our
operating effectiveness and efficiency and improve non-GAAP operating margins 300 to 600 basis points on a
constant currency basis from our 2014 baseline of 17.5%, by the time we exit 2017.
We have included the results of operations of acquired companies in our consolidated results of operations from the date
of their respective acquisition, which impacts the comparability of our results of operations when comparing 2016, 2015
and 2014. We have noted in the discussion below, to the extent meaningful, the impact on the comparability of our
consolidated results of operations to prior year results due to the inclusion of acquired companies. We completed our
acquisition of Attentive.ly in July 2016. We have included the results of operations of Attentive.ly in our consolidated results
of operations from the date of acquisition; however, Attentive.ly's results are insignificant and are not discussed since they
do not have a significant impact on the comparability of our results for any period presented.
Total revenue
Years ended December 31,
2016
730.8
$
Change
14.6% $
2015
637.9
(dollars in millions)
Total revenue(1)
(1)
Included in total revenue for 2016 and 2015 was $39.8 million and $8.5 million, respectively, attributable to the inclusion of Smart Tuition.
Excluding the impact of Smart Tuition noted above, total revenue increased by $61.6 million during 2016, which was
primarily driven by growth in subscriptions revenue as our business model continues to shift towards providing predominantly
cloud-based subscription solutions. Subscriptions revenue also grew as a result of increases in the number of customers
and the volume of transactions for which we process payments. Services revenue contributed modestly to the increase in
total revenue during 2016 primarily due to increases in consulting and training revenue. Maintenance revenue, as well as
license fees and other revenue declined during 2016 from the continued migration of our business model toward
subscription-based solutions, including our NXT solutions. In the near-term, the transition to subscription-based solutions
negatively impacts total revenue growth, as time-based license revenue from subscription arrangements is deferred and
recognized ratably over the subscription period, whereas on-premise license revenue from arrangements that include
perpetual licenses is recognized up-front. In addition, the fluctuation in foreign currency exchange rates negatively impacted
30
2016 Form 10-K
Blackbaud, Inc.
our total revenue during 2016 by approximately $4.2 million. Further explanation of this impact is included below under
the caption "Foreign Currency Exchange Rates".
Income from operations
(dollars in millions)
Income from operations
Years ended December 31,
$
2016
61.8
Change
32.3% $
2015
46.7
The increase in income from operations during 2016 was primarily driven by growth in subscriptions revenue discussed
above, improvements in the utilization of consulting services personnel and a reduction in non-billable implementation
service hours. In 2015, we also recorded charges for acquisition related expenses of $3.7 million related to our acquisition
of Smart Tuition, which did not recur in 2016. Partially offsetting these favorable impacts to income from operations were
increases in amortization of intangible assets from business combinations and stock-based compensation of $10.2 million
and $7.4 million, respectively, as well as investments we are making in our sales and marketing organizations and customer
success program. In addition, the fluctuation in foreign currency exchange rates negatively impacted our income from
operations during 2016 by approximately $1.0 million. Further explanation of this impact is included below under the
caption "Foreign Currency Exchange Rates".
Customer retention
Subscription contracts are typically for a term of three years at contract inception with one year renewals thereafter. Over
time, we anticipate a decrease in maintenance contract renewals as we transition our solution portfolio and maintenance
customers from a perpetual license-based model to a cloud-based subscription delivery model. We also anticipate an
increase in subscription contract renewals as we continue focusing on innovation, quality and the integration of our
subscription solutions which we believe will provide value-adding capabilities to better address our customers' needs. Due
primarily to these factors, we believe a recurring revenue customer retention measure that combines subscription and
maintenance customer contracts provides a better representation of our customers' overall behavior. During 2016 and
2015, approximately 93% and 94%, respectively, of our customers with recurring subscription or maintenance contracts
were retained. The decrease in our customer retention rates between 2015 and 2016 was primarily driven by our ongoing
efforts to rationalize our portfolio of solutions and migrate customers from legacy on-premise solutions towards our next
generation cloud-based solutions. We expect this transition to continue during 2017. As discussed above, we are investing
in our customer success program, which we believe will drive increased customer retention over the long-term.
Balance sheet and cash flow
At December 31, 2016, our cash and cash equivalents were $16.9 million and outstanding borrowings under the 2014
Credit Facility were $343.9 million. During 2016, we generated $153.6 million in cash flow from operations, decreased
our borrowings by $66.4 million, returned $22.8 million to stockholders by way of dividends and had cash outlays of $44.1
million for purchases of property and equipment and capitalized software development costs.
Lease for new headquarters facility
In May 2016, we entered into a lease agreement for a New Headquarters Facility to be built in Charleston, South Carolina.
For a detailed discussion of the New Headquarters Facility, see Note 11 of our consolidated financial statements in this
report.
2016 Form 10-K
31
Blackbaud, Inc.
Results of Operations
Comparison of 2016 to 2015 and 2015 to 2014
During 2016, 2015 and 2014, we acquired companies that provided us with strategic opportunities to expand our TAM
and share of the philanthropic giving market through the integration of complementary solutions and services to serve the
changing needs of our customers. The following are the companies we acquired and their respective acquisition dates:
• Good+Geek, Inc., ("Attentive.ly") – July 11, 2016;
•
Smart, LLC ("Smart Tuition") – October 2, 2015;
• MicroEdge Holdings, LLC (“MicroEdge”) – October 1, 2014; and
• WhippleHill Communications, Inc. (“WhippleHill”) – June 16, 2014.
We have included the results of operations of acquired companies in our consolidated results of operations from the date
of their respective acquisition, which impacts the comparability of our results of operations when comparing 2016 to 2015
and 2015 to 2014. We have noted in the discussion below, to the extent meaningful and quantifiable, the impact on the
comparability of our consolidated results of operations to prior year results due to the inclusion of acquired companies.
Since we have integrated the operations of Smart Tuition into ours, it is impracticable to determine amounts of operating
costs attributable solely to this acquired company for 2016. Similarly, since we have integrated MicroEdge's and
WhippleHill's solutions and operations into ours, it is impracticable to determine the amount of 2016 revenue and operating
costs attributable solely to these acquired companies. Attentive.ly's results are insignificant and are not discussed since
they do not have a significant impact on the comparability of our results for any period presented. See Note 3 to our
consolidated financial statements in this report for a summary of these acquisitions.
Revenue by segment
(dollars in millions)
GMBU(1)
ECBU(2)
IBU
Other
Total revenue(3)
$
2016
383.3
303.0
42.5
2.0
Change
22.1 % $
8.2 %
1.3 %
(5.8)%
2015
313.9
279.9
42.0
2.1
Years ended December 31,
Change
16.0 % $
14.2 %
(10.8)%
32.2 %
2014
270.6
245.1
47.1
1.6
$
730.8
14.6 % $
637.9
13.0 % $
564.4
(1)
(2)
Included in GMBU revenue for 2014 was $4.5 million attributable to the inclusion of WhippleHill. WhippleHill also positively impacted GMBU revenue
for 2015. Included in GMBU revenue for 2015 and 2016 was $8.5 million and $39.8 million, respectively, attributable to the inclusion of Smart
Tuition.
Included in ECBU revenue and total revenue for 2015 and 2014 was $31.9 million and $5.8 million, respectively, attributable to the inclusion of
MicroEdge.
(3) The individual amounts for each year may not sum to total revenue due to rounding.
32
2016 Form 10-K
Blackbaud, Inc.
GMBU
(dollars in millions)
GMBU revenue(1)
% of total revenue
Years ended December 31,
2016
383.3
$
52.5%
Change
22.1% $
2015
313.9
Change
16.0% $
2014
270.6
49.2%
47.9%
(1)
Included in GMBU revenue for 2014 was $4.5 million attributable to the inclusion of WhippleHill. WhippleHill also positively impacted GMBU revenue
for 2015. Included in GMBU revenue for 2015 and 2016 was $8.5 million and $39.8 million, respectively, attributable to the inclusion of Smart
Tuition.
2016 vs. 2015
Excluding the impact of Smart Tuition as discussed above, GMBU revenue increased by $38.1 million during 2016 when
compared to 2015. The increase in GMBU revenue was primarily due to growth in subscriptions revenue and, to a lesser
extent, services revenue. The growth in subscriptions revenue was primarily due to increases in demand across our portfolio
of cloud-based solutions. To a lesser extent, GMBU subscriptions revenue growth was also driven by increases in the number
of customers and the volume of transactions for which we process payments. GMBU services revenue increased during
2016 when compared to 2015 due to increases in consulting and training services related to our cloud-based solutions.
The growth in subscriptions and services revenue was partially offset by declines in maintenance and license fee revenue
from the continued migration of our business to subscription-based solutions.
2015 vs. 2014
After removing the impact attributable to Smart Tuition as discussed above, the remaining $34.8 million increase in GMBU
revenue during 2015 when compared to 2014 was primarily attributable to growth in subscriptions revenue, partially offset
by declines in license fee and other revenue and maintenance revenue. The growth in subscriptions revenue was primarily
due to increases in demand across our portfolio of cloud-based solutions. GMBU subscriptions revenue also benefited from
increases in the number of customers and the volume of transactions for which we process payments. The contribution
of revenue from WhippleHill added to GMBU's subscription revenue growth during 2015. Also contributing to overall
growth in GMBU revenue during 2015 were modest increases in consulting services revenue as well as training services
revenue. The growth in subscriptions and services revenue was partially offset by decreases in license fee and other revenue
and maintenance revenue during 2015 from the continued migration of our business to subscription-based solutions.
2016 Form 10-K
33
Blackbaud, Inc.
ECBU
2016
303.0
$
Change
8.2% $
2015
279.9
Change
14.2% $
2014
245.1
Years ended December 31,
(dollars in millions)
ECBU revenue(1)
% of total revenue
41.5%
Included in ECBU revenue for 2015 and 2014 was $31.9 million and $5.8 million, respectively, attributable to the inclusion of MicroEdge.
43.9%
43.4%
(1)
2016 vs. 2015
The increase in ECBU revenue during 2016 when compared to 2015 was primarily attributable to growth in subscriptions
revenue and, to a much lesser extent, growth in services revenue. The growth in subscriptions revenue was driven primarily
by increases in the number of customers and the volume of transactions for which we process payments and, to a lesser
extent, an increase in demand for our cloud-based solutions. ECBU services revenue increased during 2016 when compared
to 2015 due to increases in consulting and training services related to our cloud-based solutions. The growth in subscriptions
and services revenue was partially offset by declines in license fees and maintenance revenue from the continued transition
of our solution portfolio away from a perpetual license-based model toward a cloud-based subscription delivery model.
2015 vs. 2014
After removing the impacts attributable to MicroEdge as discussed above, the remaining $8.7 million increase in ECBU
revenue during 2015, when compared to 2014, was primarily attributable to growth in subscriptions revenue, partially
offset by decreases in consulting services revenue and revenue from license fees. The growth in subscriptions resulted
primarily from an increase in the number of customers and the volume of transactions for which we process payments, as
well as increases in demand for our hosting services associated with our Blackbaud CRM solution and our subscription-
based analytic services. Also contributing to the overall growth in ECBU revenue was an increase in maintenance revenue
related to new Blackbaud CRM customers. As discussed above, consulting services revenue and license fees and other
revenue decreased as a result of the continuing shift in our go-to-market strategy towards cloud-based solutions, which
in general, require less implementation services.
34
2016 Form 10-K
Blackbaud, Inc.
Years ended December 31,
$
2016
42.5
5.8%
Change
1.3% $
2015
42.0
6.6%
Change
(10.8)% $
2014
47.1
8.3%
IBU
(dollars in millions)
IBU revenue
% of total revenue
2016 vs. 2015
IBU revenue remained relatively unchanged during 2016 when compared to 2015, as an increase in subscriptions revenue
was largely offset by reductions in maintenance and consulting services revenue, as well as changes in exchange rates
between foreign currencies and the U.S. dollar, which affect the translation of its revenues into U.S. dollars for purposes
of reporting consolidated financial results. The increase in IBU subscriptions revenue during 2016 was driven primarily by
increased demand for our cloud-based solutions and, to a lesser extent, increases in the number of customers and volume
of transactions for which we process payments. In the near term, we expect IBU revenue to remain relatively unchanged
as our on-premise Raiser's Edge customers transition to our Raiser's Edge NXT solution, which, in general, requires less
implementation services. The fluctuation in foreign currency exchange rates negatively impacted IBU revenue during 2016
by approximately $2.9 million. Further explanation of this impact is included below under the caption "Foreign Currency
Exchange Rates".
2015 vs. 2014
The decrease in IBU revenue during 2015, when compared to 2014, was primarily related to a reduction in perpetual
license sales of our Raiser's Edge solution, which also caused IBU consulting services revenue and maintenance revenue to
decrease. Also contributing to the decrease in IBU revenue during 2015 was the sale of RLC in May 2015 as well as changes
in exchange rates between foreign currencies and the U.S. dollar, which affect the translation of its revenues into U.S.
dollars for purposes of reporting consolidated financial results. The fluctuation in foreign currency exchange rates negatively
impacted IBU revenue during 2015 by approximately $5.5 million. Further explanation of this impact is included below
under the caption "Foreign Currency Exchange Rates".
2016 Form 10-K
35
Operating results
Subscriptions
(dollars in millions)
Subscriptions revenue(1)
Cost of subscriptions
Subscriptions gross profit
Subscriptions gross margin
Blackbaud, Inc.
Years ended December 31,
2016
429.0
213.9
215.1
$
$
Change
29.3% $
27.8%
2015
331.8
167.3
Change
25.9% $
25.6%
2014
263.4
133.2
30.8% $
164.4
26.3% $
130.2
50.1%
49.6%
49.4%
(1)
Included in subscriptions revenue for 2016 was $39.3 million attributable to the inclusion of Smart Tuition. Included in subscriptions revenue for
2015 was $18.2 million and $8.3 million attributable to the inclusion of MicroEdge and Smart Tuition, respectively. WhippleHill also positively
impacted subscriptions revenue for 2015 when compared to 2014. Included in subscriptions revenue for 2014 was $3.0 million and $2.7 million
attributable to the inclusion of MicroEdge and WhippleHill, respectively.
Subscriptions revenue is comprised of revenue from charging for the use of our subscription-based software solutions,
which includes providing access to cloud-based solutions and hosting services, access to certain data services and our online
subscription training offerings, revenue from payment processing services as well as variable transaction revenue associated
with the use of our solutions.
We continue to experience growth in sales of our hosted applications and hosting services as we meet the demand of our
customers that increasingly prefer cloud-based subscription offerings, including existing customers that are migrating from
on-premise solutions to our cloud-based solutions. In addition, we have experienced growth in our payment processing
services from the continued shift to online giving, further integration of these services to our existing solution portfolio
and the sale of these services to new and existing customers. Recurring subscription contracts are typically for a term of
three years at contract inception with one year annual renewals thereafter. We intend to continue focusing on innovation,
quality and the integration of our subscription solutions which we believe will drive subscriptions revenue growth. We are
also investing in our customer success organization to drive customer loyalty, retention, and referrals.
Cost of subscriptions is primarily comprised of compensation costs, third-party contractor expenses, third-party royalty and
data expenses, hosting expenses, allocated depreciation, facilities and IT support costs, amortization of intangible assets
from business combinations, amortization of software development costs, transaction-based costs related to payments
services including remittances of amounts due to third-parties and other costs incurred in providing support and services
to our customers.
2016 vs. 2015
Excluding the incremental subscriptions revenue from Smart Tuition as discussed above, subscriptions revenue increased
by $66.2 million during 2016 when compared 2015. The increase was primarily due to strong demand across our cloud-
based solution portfolio and, to a lesser extent, increases in the number of customers and the volume of transactions for
which we process payments.
The increase in cost of subscriptions during 2016 when compared to 2015 was slightly lower than the increase in revenue.
The increase in cost of subscriptions was driven primarily by increases in transaction-based costs related to our payments
services and those of Smart Tuition of $21.8 million, amortization of intangible assets from business combinations of $8.2
million, third-party contractor expenses $4.4 million, costs of third-party technology embedded in certain of our subscription
solutions of $4.4 million, and increases in amortization of software development costs of $3.0 million. The increase in
amortization of intangible assets from business combinations was primarily due the incremental amortization of intangible
assets arising from the acquisition of Smart Tuition in October 2015. The increases in third-party contract costs and
amortization of software development costs were from investments made on innovation, quality and the integration of
our cloud-based solutions.
The increase in subscriptions gross margin when comparing 2016 to 2015 was primarily the result of disciplined management
of headcount and compensation costs as the growth in subscriptions revenue outpaced the growth in related costs.
36
2016 Form 10-K
Blackbaud, Inc.
2015 vs. 2014
Excluding the incremental subscriptions revenue from MicroEdge and Smart Tuition as discussed above, subscriptions
increased by $44.9 million during 2015 when compared to 2014. The increase in recurring subscriptions revenue during
2015 when compared to 2014 was primarily due to strong demand across our solution portfolio including our cloud-based
solutions, as well as from providing hosting services to customers who have purchased perpetual rights to certain of our
software solutions. Subscriptions revenue also grew as a result of increases in the number of customers and the volume
of transactions for which we process payments, as well as an increase in the volume of subscription-based analytic services
provided. Also contributing to the increase in subscriptions revenue was the inclusion of WhippleHill for the full year in
2015.
The increase in cost of subscriptions during 2015 when compared to 2014 was relatively consistent with the increase in
revenue. The increase in cost of subscriptions was primarily due to an increase in transaction-based costs related to our
payments services of $10.0 million, an increase in compensation costs of $7.0 million, an increase in amortization expense
related to software development costs of $3.5 million, an increase in the cost of third-party technology embedded in certain
of our subscription solutions of $3.4 million and an increase in amortization of intangible assets from business combinations
of $2.8 million. The increase in compensation costs was primarily due to an increase in subscription customer support
headcount directly related to our growing base of subscription customers. The inclusion of Smart Tuition, MicroEdge and
WhippleHill also contributed to the increase in compensation costs during 2015.
Subscriptions gross margin remained relatively unchanged when comparing 2015 to 2014.
2016 Form 10-K
37
Blackbaud, Inc.
Maintenance
(dollars in millions)
Maintenance revenue(1)
Cost of maintenance
Maintenance gross profit
Maintenance gross margin
Years ended December 31,
2016
146.9
22.1
124.9
$
$
Change
(4.5)% $
(18.4)%
2015
153.8
27.1
Change
4.3% $
6.4%
2014
147.4
25.4
(1.5)% $
126.7
3.9% $
122.0
85.0%
82.4%
82.7%
(1)
Included in maintenance revenue for 2015 and 2014 was $11.0 million and $1.9 million, respectively, attributable to the inclusion of MicroEdge.
Maintenance revenue is comprised of annual fees derived from maintenance contracts associated with new software
licenses and annual renewals of existing maintenance contracts. These contracts provide customers with updates,
enhancements and certain upgrades to our software solutions and online, telephone and email support. Maintenance
contracts are typically renewed on an annual basis.
Cost of maintenance is primarily comprised of compensation costs, third-party contractor expenses, third-party royalty
costs, allocated depreciation, facilities and IT support costs, amortization of intangible assets from business combinations,
amortization of software development costs and other costs incurred in providing support and services to our customers.
2016 vs. 2015
The decreases in maintenance revenue during 2016 when compared to 2015 were primarily related to a reduction in
maintenance contracts associated with our on premise Raiser's Edge and Financial Edge solutions as customers migrated
to our cloud-based NXT solutions, partially offset by increases in maintenance contracts associated with Blackbaud
Enterprise CRM.
The decrease in maintenance revenue during 2016 was primarily comprised of (i) $23.2 million of reductions in
maintenance from contracts that were migrated to a cloud-based subscription or not renewed and reductions in
contracts with existing customers; partially offset by (ii) $15.3 million of incremental maintenance from new customers
associated with new license contracts and increases in contracts with existing customers; and (iii) $1.0 million of
incremental maintenance from contractual inflationary rate adjustments.
Cost of maintenance decreased during 2016 when compared to 2015 primarily as a result of a decrease in
compensation costs of $4.9 million, from a shift in support headcount from maintenance towards sales, marketing and
customer success expense, and a shift in the volume of customer support requests from maintenance towards
subscriptions. Also contributing to the decrease in compensation costs was an improvement in the efficiency of our
customer support center.
Maintenance gross margin increased during 2016 when compared to 2015 primarily due to the shift in compensation
costs from maintenance as discussed above, as well as the improvement in the efficiency of our customer support
center.
2015 vs. 2014
After removing the incremental maintenance revenue from MicroEdge as discussed above, maintenance revenue decreased
by $2.7 million during 2015 when compared to 2014. The decrease in maintenance revenue during 2015 when compared
to 2014 was primarily related to a reduction in maintenance contracts associated with on-premise Raiser's Edge as customers
migrated to our Raiser's Edge NXT cloud-based solution, partially offset by an increase in maintenance contracts associated
with Blackbaud CRM. The decrease was primarily comprised of (i) $11.2 million of reductions in maintenance from contracts
that were not renewed and reductions in contracts with existing customers; partially offset by (ii) $5.7 million of incremental
maintenance from new customers associated with new license contracts and increases in contracts with existing customers;
and (iii) $2.8 million of incremental maintenance from contractual inflationary rate adjustments.
38
2016 Form 10-K
Blackbaud, Inc.
Cost of maintenance increased during 2015 when compared to 2014 primarily as a result of an increase in amortization
of intangible assets from business combinations of $3.4 million. Partially offsetting the increase in cost of maintenance
was a decrease in compensation costs primarily due to the shift in customer support headcount from maintenance towards
subscriptions as customers migrate towards our cloud-based solution.
Maintenance gross margin remained relatively unchanged when comparing 2015 to 2014.
2016 Form 10-K
39
Services
(dollars in millions)
Services revenue(1)
Cost of services
Services gross profit
Services gross margin
Blackbaud, Inc.
Years ended December 31,
2016
139.7
96.5
43.2
$
$
Change
5.0 % $
(6.2)%
2015
133.0
102.8
Change
3.6 % $
(3.5)%
2014
128.4
106.5
43.2 % $
30.2
38.0 % $
21.9
30.9%
22.7%
17.0%
(1)
Included in services revenue for 2015 was $1.8 million attributable to the inclusion of MicroEdge. The impact on services revenue in 2015 and 2016
as a result of the inclusion of Smart Tuition was not significant. Included in services revenue for 2014 was $1.6 million attributable to the inclusion
of WhippleHill. The impact on services revenue in 2014 as a result of the inclusion of MicroEdge was not significant.
We derive services revenue from consulting, implementation, education, analytic and installation services. Consulting,
implementation and installation services involve converting data from a customer’s existing system, system configuration,
process re-engineering and assistance in file set up. Education services involve customer training activities. Analytic services
are comprised of donor prospect research, sales of lists of potential donors, benchmarking studies and data modeling
services. These analytic services involve the assessment of current and prospective donor information of the customer and
are performed using our proprietary analytical tools. The end product is intended to enable organizations to more effectively
target their fundraising activities.
Cost of services is primarily comprised of compensation costs, third-party contractor expenses, classroom rentals, costs
incurred in providing customer training, data expense incurred to perform analytic services, allocated depreciation, facilities
and IT support costs and amortization of intangible assets from business combinations.
2016 vs. 2015
Services revenue increased during 2016 when compared to 2015, primarily due to increases in deliveries of consulting and
training services related to our cloud-based solutions, as well as a reduction in non-billable implementation service hours.
We expect that the continuing shift in our go-to-market strategy towards cloud-based subscription offerings, which, in
general, require less implementation services and little to no customization services when compared our traditional on
premise perpetual license arrangements, will negatively impact consulting services revenue growth over time. The
maturation of our Blackbaud Enterprise CRM solution, our only remaining perpetual licensed-based offering, is lessening
the extent of implementation services required.
The decrease in cost of services during 2016 when compared to 2015, was primarily due to a decrease in compensation
costs of $4.3 million, related to utilization improvements and a reduction in non-billable implementation service hours for
our Blackbaud Enterprise CRM solution.
Services gross margin increased during 2016 when compared to 2015, primarily due to increased consulting and training
revenue coupled with improvements in the utilization of consulting services personnel and a reduction in non-billable
implementation hours.
2015 vs. 2014
After the incremental services revenue from MicroEdge as discussed above, the remaining $2.8 million increase in services
revenue during 2015 when compared to 2014 was primarily a result of an increase in consulting services revenue from
the inclusion of WhippleHill for the full year in 2015. Also contributing to the growth in services revenue during 2015
when compared to 2014 were increases in analytic and training services deliveries.
Cost of services decreased during 2015, when compared to 2014 primarily due to a $3.2 million decrease in compensation
costs related to improvements in the utilization of consulting services personnel.
Services gross margin increased during 2015 when compared to 2014 primarily due to improvements in the utilization of
consulting services personnel.
40
2016 Form 10-K
Blackbaud, Inc.
License fees and other
(dollars in millions)
License fees and other revenue
Cost of license fees and other
License fees and other gross profit
License fees and other gross margin
$
$
2016
15.2
6.8
8.4
55.5%
Change
(21.7)% $
(8.8)%
(29.7)% $
2015
19.4
7.4
12.0
61.8%
Years ended December 31,
Change
(23.0)% $
(10.3)%
(29.2)% $
2014
25.2
8.3
16.9
67.2%
License fees and other revenue includes revenue from the sale of our software solutions under perpetual license
arrangements, reimbursement of travel-related expenses primarily incurred during the performance of services at customer
locations, fees from user conferences and third-party software referral fees.
Cost of license fees and other is primarily comprised of third-party software royalties, variable reseller commissions,
amortization of software development costs, compensation costs, costs of business forms, costs of user conferences,
reimbursable expenses relating to the performance of services at customer locations, allocated depreciation, facilities and
IT support costs and amortization of intangibles from business combinations.
2016 vs. 2015
License fees and other revenue decreased during 2016 when compared to 2015 primarily due to the continued transition
of our solution portfolio away from a perpetual license-based model toward a cloud-based subscription delivery model.
This is a trend we expect to continue in continue in 2017.
The decrease in cost of license fees and other during 2016 when compared to 2015 was primarily due to less reimbursable
expenses relating to the performance of services at customer locations, partially offset by an increase in costs related to
our user conferences.
License fees and other gross margin decreased during 2016 when compared to 2015 primarily due to the reduction in
license fees revenue driven by the continued transition in our solution portfolio toward a cloud-based subscription delivery
model, as discussed above, relative to the lesser changes in cost of license fees and other as some costs are more fixed in
nature.
2015 vs. 2014
Revenue from license fees and other decreased during 2015 when compared to 2014 primarily as a result of the ongoing
transition of our solution portfolio away from a perpetual license-based model toward a cloud-based subscription delivery
model.
The decrease in cost of license fees and other during 2015 when compared to 2014 was primarily due to reductions in
third-party software royalties and reseller commissions, driven by the ongoing transition of our solution portfolio away
from a perpetual license-based model toward a subscription-based delivery model. In addition, cost of license fees and
other decreased as there was less amortization of software development costs in 2015 when compared to 2014.
License fees and other gross margin decreased during 2015 when compared to 2014 primarily due to the ongoing transition
of our solution portfolio away from a perpetual license-based model toward a subscription-based delivery model relative
to the lesser changes in cost of license fees and other as some costs are more fixed in nature.
2016 Form 10-K
41
Blackbaud, Inc.
Operating expenses
Sales, marketing and customer success
(dollars in millions)
Sales, marketing and customer success expense $
2016
155.8
Change
26.0% $
2015
123.6
Change
15.2% $
2014
107.4
% of total revenue
21.3%
19.4%
19.0%
Sales, marketing and customer success expense includes compensation costs, travel-related expenses, sales commissions,
advertising and marketing materials, public relations costs and allocated depreciation, facilities and IT support costs.
Years ended December 31,
2016 vs. 2015
We continue to make investments to drive sales effectiveness, which is a component of our four-point growth strategy to
accelerate revenue growth. The increases in sales, marketing, and customer success expense in dollars and as a percentage
of total revenue during 2016 when compared 2015, was primarily due to increases in compensation costs of $21.5 million
and commissions expense $5.6 million. Compensation costs increased primarily due to incremental headcount to support
the increase in direct sales, marketing, and customer success efforts of our growing operations. The expansion of our
customer success program is targeted to ensure our customers are fully realizing the value of our solutions, which we
believe will drive customer loyalty and retention and will also result in increased customer referrals. The increases in
commission expense were primarily driven by increases in commissionable revenue during 2016 when compared to 2015.
The inclusion of Smart Tuition for the full year in 2016 also contributed to the increases in compensation costs and
commissions expense.
2015 vs. 2014
Sales, marketing and customer success expense as a percentage of revenue remained relatively unchanged when comparing
2015 to 2014.
The increase in sales, marketing and customer success expense during 2015 when compared to 2014 was primarily due
to increases in compensation costs and commissions expense of $5.7 million and $4.9 million, respectively. To a lesser
extent, increases in advertising and marketing materials costs of $1.9 million and IT support costs of $1.3 million also
contributed to the increase in sales, marketing and customer success expense during 2015. Compensation costs increased
primarily due to incremental headcount to support the increase in sales and marketing efforts of our growing operations.
The increase in commission expense was primarily driven by an increase in commissionable revenue during 2015 when
compared to 2014. The inclusion of Smart Tuition, MicroEdge and WhippleHill also contributed to the increase in sales,
marketing and customer success expense.
42
2016 Form 10-K
Blackbaud, Inc.
Research and development
Years ended December 31,
(dollars in millions)
Research and development expense(1)
% of total revenue
$
2016
89.9
12.3%
Change
6.2% $
2015
84.6
13.3%
Change
9.7% $
2014
77.2
13.7%
(1) Not included in research and development expense for 2016, 2015 and 2014 were $26.2 million, $15.5 million and $8.3 million, respectively, of
qualifying costs associated with development activities that are required to be capitalized under the internal-use software accounting guidance such
as those related to development of our next generation NXT and Luminate cloud-based solutions, as well as development costs associated with
acquired companies. Qualifying capitalized software development costs associated with our cloud-based solutions are subsequently amortized to
cost of subscriptions revenue over the related asset's estimated useful life, which generally range from three to seven years.
Research and development expense includes compensation costs, third-party contractor expenses, software development
tools and other expenses related to developing new solutions, upgrading and enhancing existing solutions, and allocated
depreciation, facilities and IT support costs.
2016 vs. 2015
We continue to make investments to deliver integrated and open solutions in the cloud, which is a component of our
four-point growth strategy to accelerate revenue growth. The increase in research and development expense during
2016 when compared to 2015, was primarily due to an increase in compensation costs of $13.0 million. We have
added engineering headcount to drive our solution development efforts, and the inclusion of Smart Tuition added to
the increases in compensation costs. Also contributing to the increase in research and development expense during
2016 was an increase in third-party contractor expenses of $1.8 million, to assist in our solution development efforts.
Partially offsetting these increases during 2016 was an increase of $10.7 million in the amount of software development
costs that were capitalized. As discussed above, the increase in the amount capitalized was a result of incurring more
qualifying costs associated with development activities that are required to be capitalized under the internal-use
software accounting guidance. We expect that the increase in the amount of software development costs capitalized
will continue in the near-term as we make investments on innovation, quality and the integration of our solutions which
we believe will drive long-term revenue growth.
Research and development expense decreased as a percentage of total revenue during 2016, when compared to 2015,
primarily due to the increase in the amount of software development costs capitalized as discussed above.
2015 vs. 2014
Research and development expense as a percentage of revenue remained relatively unchanged when comparing 2015 to
2014.
The increase in research and development expense during 2015 when compared to 2014 was primarily due to increases
in compensation costs of $11.1 million. We added engineering headcount to drive our solution development efforts. The
inclusion of Smart Tuition, MicroEdge and WhippleHill contributed to the increase in compensation costs. Also contributing
to the increase in research and development expense during 2015 were increases in stock-based compensation of $1.6
million and allocated IT support costs of $1.6 million. Partially offsetting these research and development expense increases
during 2015 was a $7.2 million increase in the amount of software development costs that were capitalized. As discussed
above, the increase in the amount capitalized was a result of incurring more qualifying costs associated with development
activities that are required to be capitalized under the internal-use software accounting guidance.
2016 Form 10-K
43
Blackbaud, Inc.
General and administrative
(dollars in millions)
General and administrative expense
% of total revenue
$
2016
81.3
11.1%
Change
6.9% $
2015
76.1
11.9%
Change
30.6% $
2014
58.3
10.3%
General and administrative expense consists primarily of compensation costs for general corporate functions, including
senior management, finance, accounting, legal, human resources and corporate development, third-party professional
fees, insurance, allocated depreciation, facilities and IT support costs, acquisition-related expense and other administrative
expenses.
Years ended December 31,
2016 vs. 2015
General and administrative expense decreased as a percentage of total revenue during 2016, when compared to the same
periods in 2015, primarily due our successful integration of Smart Tuition as well as progress against our operating efficiency
initiative, which has allowed us to improve resource effectiveness and maintain tight control over discretionary spending.
The increase in general and administrative expense during 2016 was driven primarily by an increase in compensation costs
of $5.1 million. Compensation costs increased primarily due to increases in stock-based compensation expense, employee
benefit costs and salaries for the resources needed to support the growth of our business. The increase in stock-based
compensation expense was primarily driven by an increase in the grant date fair value of our annual equity awards granted
during 2016 when compared to the grant date fair value of our annual equity awards granted during 2015. The inclusion
of Smart Tuition also contributed to the growth in general and administrative expense during 2016.
2015 vs. 2014
General and administrative expense increased as a percentage of revenue during 2015 when compared to 2014 primarily
due to the inclusion of MicroEdge, which historically had higher general and administrative expenses as a percentage of
revenue. The growth in stock-based compensation discussed below also contributed to the increase in general and
administrative expense as a percentage of revenue.
The increase in general and administrative expense during 2015 when compared to 2014 was primarily due to increases
in human resource costs of $7.7 million, stock-based compensation expense of $5.6 million, infrastructure costs of $3.7
million and acquisition-related expenses and integration costs of $1.9 million. Partially offsetting these increases during
2015 was a decrease in other corporate costs of $4.9 million. Human resource costs increased primarily due to additional
resources needed to support the growth of our business and from the inclusion of Smart Tuition, MicroEdge and WhippleHill
personnel. The increases in infrastructure and acquisition-related expenses and integration costs were primarily due to our
acquisitions of Smart Tuition and MicroEdge. The increase in stock-based compensation expense was primarily attributable
to a change in timing of certain annual equity award grants, whereby annual grants that would have otherwise been made
in 2013 were instead made during 2014, as well as the impact of new equity award grants in the current year to certain
senior management hires. There was no change in the timing of annual equity award grants in the current year when
compared to the prior year.
44
2016 Form 10-K
Interest expense
(dollars in millions)
Interest expense
% of total revenue
2016 vs. 2015
Blackbaud, Inc.
Years ended December 31,
$
2016
10.6
1.4%
Change
31.1% $
2015
8.1
1.3%
Change
34.3% $
2014
6.0
1.1%
Interest expense increased during 2016 when compared to 2015 primarily as a result of an increase in our average daily
borrowings related to our acquisitions of Smart Tuition in October 2015. In the near term, we expect interest expense, as
well as interest expense as a percentage of revenue, to decrease as we continue to delever our balance sheet and grow
our business.
2015 vs. 2014
Interest expense increased during 2015 when compared to 2014 primarily due to an increase in our average daily borrowings
related to our acquisitions of Smart Tuition in October 2015 and MicroEdge in October 2014.
Deferred revenue
The table below compares the components of deferred revenue from our consolidated balance sheets:
(dollars in millions)
Subscriptions
Maintenance
Timing of recognition
Over the period billed in advance,
December 31,
2016
Change
December 31,
2015
generally one year $
144.6
18.0 % $
122.5
Over the period billed in advance,
generally one year
76.8
(10.6)%
As services are delivered
Services
License fees and other
Total deferred revenue(1)
Less: Long-term portion
Current portion(1)
(1) The individual amounts for each year may not sum to total deferred revenue or current portion of deferred revenue due to rounding.
Upon delivery of the solution or service
6.2 % $
25.2 %
(9.5)%
5.7 %
1.8 %
250.9
244.5
29.0
6.4
0.5
$
85.9
28.5
0.4
237.3
7.1
230.2
To the extent that our customers are billed for our solutions and services in advance of delivery, we record such amounts
in deferred revenue. We generally invoice our subscription and maintenance customers in annual cycles 30 days prior to
the end of the contract term. Deferred revenue attributable to subscriptions increased during 2016 when compared to
2015 primarily due to an increase in subscription sales. The decrease in deferred revenue attributable to maintenance
during 2016 was primarily due to the continuing shift in our go-to-market strategy towards cloud-based subscription
offerings which do not require maintenance contracts and, in general, require less implementation services than our
traditional on-premise license arrangements.
We have acquired businesses whose net tangible assets include deferred revenue. In accordance with GAAP reporting
requirements, we recorded write-downs of deferred revenue from customer arrangements predating the acquisition to
fair value, which resulted in lower recorded deferred revenue as of the acquisition date than the actual amounts paid in
advance for solutions and services under those customer arrangements. Therefore, our deferred revenue after an acquisition
will not reflect the full amount of deferred revenue that would have been reported if the acquired deferred revenue was
not written down to fair value. The impact of acquisition-related deferred revenue write-downs largely impacted deferred
revenue from subscriptions as of December 31, 2015. Further explanation of this impact is included below under the
caption "Non-GAAP financial measures".
2016 Form 10-K
45
Blackbaud, Inc.
Income tax provision
Our income tax provision and effective income tax rates, including the effects of period-specific events, were:
(dollars in millions)
Income tax provision
Effective income tax rate
Years ended December 31,
2016
9.4
$
2015
11.3
$
2014
10.9
$
18.5%
30.6%
27.9%
Our effective income tax rate may fluctuate quarterly as a result of factors, including transactions entered into, changes
in the geographic distribution of our earnings or losses, our assessment of certain tax contingencies, valuation allowances,
and changes in tax law in jurisdictions where we conduct business.
We have deferred tax assets for federal, state, and international net operating loss carryforwards and tax credits. The federal
and state net operating loss carryforwards are subject to various Internal Revenue Code limitations and applicable state
tax laws. A portion of the foreign and state net operating loss carryforwards and a portion of state tax credits have a
valuation reserve due to the uncertainty of realizing such carryforwards and credits in the future.
We file income tax returns in the U.S. for federal and various state jurisdictions as well as in foreign jurisdictions including
Canada, the United Kingdom, Australia, and Ireland. We are generally subject to U.S. federal income tax examination for
calendar tax years ending 2013 through 2016, as well as state and foreign income tax examinations for various years
depending on statute of limitations of those jurisdictions.
We have taken federal and state tax positions for which it is reasonably possible that the total amount of unrecognized
tax benefits may decrease within the next twelve months. The possible decrease could result from the expiration of statutes
of limitations. The reasonably possible decrease at December 31, 2016 was insignificant.
We recognize accrued interest and penalties, if any, related to unrecognized tax benefits as a component of income tax
expense.
2016 vs. 2015
The decrease in our effective income tax rate during 2016 when compared to 2015 was primarily due to a $7.7 million
benefit to expense from the early adoption of ASU 2016-09 relating to stock based compensation. Under ASU 2016-09,
tax benefits in excess of compensation costs (windfalls) generated upon the exercise or settlement of stock awards are no
longer recognized as additional paid-in capital but are instead recognized as a reduction to income tax expense. This change
in accounting for income taxes is effective on a prospective basis as of the beginning of the 2016 fiscal year. The decrease
in our effective income tax rate was partially offset by a $1.0 million charge to expense from Section 162(m) nondeductible
compensation. For additional discussion of ASU 2016-09 and its effects upon adoption, refer to Note 2 of our consolidated
financial statements in this report. In 2017, we expect that stock-based compensation will continue to provide a significant
benefit to our effective income tax rate.
The total amount of unrecognized tax benefit that, if recognized, would favorably affect the effective income tax rate, was
$2.4 million and $2.3 million at December 31, 2016 and December 31, 2015, respectively.
2015 vs. 2014
The increase in our effective income tax rate during 2015 when compared to 2014 was primarily due to a $0.8 million
charge to expense from an increase in the state effective tax rate applied to deferred balances as a result of changes in
state apportionment rules and a $0.7 million charge to expense as a result of the loss on the sale of RLC. This increase in
our effective tax rate was partially offset by an increase in the benefit of the domestic production activities deduction and
a reduction in the loss of a foreign subsidiary for which we have determined that a valuation allowance is appropriate.
46
2016 Form 10-K
Blackbaud, Inc.
Non-GAAP financial measures
The operating results analyzed below are presented on a non-GAAP basis. We use non-GAAP revenue, non-GAAP gross
profit, non-GAAP gross margin, non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income
and non-GAAP diluted earnings per share internally in analyzing our operational performance. Accordingly, we believe
these non-GAAP measures are useful to investors, as a supplement to GAAP measures, in evaluating our ongoing operational
performance. While we believe these non-GAAP measures provide useful supplemental information, non-GAAP financial
measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance
with GAAP. In addition, these non-GAAP financial measures may not be completely comparable to similarly titled measures
of other companies due to potential differences in the exact method of calculation between companies.
We have acquired businesses whose net tangible assets include deferred revenue. In accordance with GAAP reporting
requirements, we recorded write-downs of deferred revenue under arrangements predating the acquisition to fair value,
which resulted in lower recognized revenue than the contributed purchase price until the related obligations to provide
services under such arrangements are fulfilled. Therefore, our GAAP revenues after the acquisitions will not reflect the full
amount of revenue that would have been reported if the acquired deferred revenue was not written down to fair value.
The non-GAAP measures described below reverse the acquisition-related deferred revenue write-downs so that the full
amount of revenue booked by the acquired companies is included, which we believe provides a more accurate representation
of a revenue run-rate in a given period and, therefore, will provide more meaningful comparative results in future periods.
However, since the deferred revenue acquired in connection with the acquisition of Attentive.ly was insignificant and
approximates fair value, no deferred revenue write-down was recorded for that acquisition.
The non-GAAP financial measures discussed below exclude the impact of certain transactions because we believe they are
not directly related to our operating performance in any particular period, but are for our long-term benefit over multiple
periods. We believe that these non-GAAP financial measures reflect our ongoing business in a manner that allows for
meaningful period-to-period comparisons and analysis of trends in our business.
(dollars in millions)
GAAP Revenue
Non-GAAP adjustments:
Add: Acquisition-related deferred revenue
write-down
Non-GAAP revenue(1)
GAAP gross profit
GAAP gross margin
Non-GAAP adjustments:
Add: Acquisition-related deferred revenue
write-down
Add: Stock-based compensation expense
Add: Amortization of intangibles from
business combinations
Add: Employee severance
Subtotal(1)
Non-GAAP gross profit(1)
Non-GAAP gross margin
2016
$
730.8
Change
14.6 % $
2015
637.9
Change
13.0 % $
2014
564.4
Years ended December 31,
$
$
3.6
734.5
(61.2)%
9.4
50.1 %
6.2
13.5 % $
647.3
13.4 % $
570.7
391.6
17.5 % $
333.3
14.5 % $
291.0
53.6%
52.2%
51.6%
3.6
3.3
39.6
0.4
46.9
(61.2)%
(5.6)%
31.9 %
(74.4)%
5.7 %
9.4
3.5
30.0
1.5
44.3
50.1 %
(3.1)%
23.2 %
100.0 %
29.7 %
$
438.5
16.1 % $
377.7
16.1 % $
6.2
3.6
24.3
—
34.2
325.2
59.7%
58.3%
57.0%
(1) The individual amounts for each year may not sum to non-GAAP revenue, subtotal or non-GAAP gross profit due to rounding.
2016 Form 10-K
47
(dollars in millions, except per share amounts)
GAAP income from operations
$
GAAP operating margin
Non-GAAP adjustments:
Add: Acquisition-related deferred revenue
write-down
Add: Stock-based compensation expense
Add: Amortization of intangibles from
business combinations
Add: Employee severance
Add: Impairment of capitalized software
development costs
Add: Acquisition-related integration costs
Add: Acquisition-related expenses
Add: CEO transition costs
Subtotal(1)
Non-GAAP income from operations(1)
Non-GAAP operating margin
GAAP net income
Shares used in computing GAAP diluted
earnings per share
Blackbaud, Inc.
Years ended December 31,
2016
61.8
8.5%
Change
32.3 % $
2015
46.7
7.3%
Change
0.8 % $
2014
46.4
8.2%
3.6
32.6
42.4
2.0
(61.2)%
29.3 %
31.6 %
(37.1)%
— (100.0)%
1.4
0.3
—
82.4
144.2
19.6%
30.1 %
(92.3)%
— %
9.5 %
18.2 % $
9.4
25.2
32.2
3.2
0.2
1.1
3.9
50.1 %
45.6 %
23.2 %
100.0 %
(85.3)%
37.1 %
68.6 %
— (100.0)%
75.2
122.0
18.8%
36.0 %
19.9 % $
6.2
17.3
26.1
—
1.6
0.8
2.3
0.9
55.3
101.7
17.8%
41.5
61.9 % $
25.6
(9.3)% $
28.3
$
$
47,316,538
1.8 % 46,498,704
1.5 % 45,799,874
GAAP diluted earnings per share
$
0.88
60.0 % $
0.55
(11.3)% $
0.62
Non-GAAP adjustments:
Add: Total Non-GAAP adjustments affecting
loss from operations
Add: Loss on sale of business
Add: Loss on debt extinguishment and
termination of derivative instruments
Less: Tax impact related to Non-GAAP
adjustments
Non-GAAP net income(1)
Shares used in computing Non-GAAP diluted
earnings per share
82.4
9.5 %
— (100.0)%
75.2
2.0
36.0 %
100.0 %
—
— %
— (100.0)%
55.3
—
1.0
(33.3)
90.7
0.1 %
30.2 % $
(33.2)
69.6
26.2 %
19.5 % $
(26.3)
58.3
$
47,316,538
1.8 % 46,498,704
1.5 % 45,799,874
Non-GAAP diluted earnings per share
$
1.92
28.0 % $
1.50
18.1 % $
1.27
(1) The individual amounts for each year may not sum to subtotal, non-GAAP income from operations or non-GAAP net income due to rounding.
2016 vs. 2015
The increases in non-GAAP income from operations and non-GAAP operating margins during 2016 when compared to
2015 were primarily due to growth in subscriptions revenue, improvements in the utilization of consulting services personnel
and a reduction in non-billable implementation service hours, partially offset by increases in transaction-based costs related
to our payments services, compensation costs and investments we are making in our sales organization and customer
success program, as discussed above. The inclusion of Smart Tuition for the full year in 2016 contributed to the increase
in subscriptions revenue as well as the increases in costs related to our payment services and compensation costs.
48
2016 Form 10-K
Blackbaud, Inc.
2015 vs. 2014
The increases in non-GAAP income from operations and non-GAAP operating margins during 2015 when compared to
2014 were primarily due to the growth in subscriptions revenue and the incremental revenue from acquired companies
as discussed above, partially offset by increases in compensation costs, transaction-based costs related to payments services
and IT infrastructure costs. Also contributing to the increases in non-GAAP income from operations and non-GAAP operating
margins were the realization of benefits from certain incremental investments made during 2014 that were targeted to
drive the success of our then-five growth strategies including gains in efficiency and scalability. While we continue to invest
in these strategies, the amount of certain investments decreased in 2015 when compared to 2014.
As previously disclosed, beginning in 2016, we now apply a non-GAAP effective tax rate of 32.0% in our determination
of non-GAAP net income, which represents the GAAP effective tax rate, excluding the discrete tax effect of stock-based
compensation. The non-GAAP effective tax rate utilized will be reviewed annually to determine whether it remains
appropriate in consideration of our financial results including our periodic effective tax rate calculated in accordance with
GAAP, our operating environment and related tax legislation in effect and other factors deemed necessary. For years ended
December 31, 2015 and 2014, the tax impact related to non-GAAP adjustments, non-GAAP net income and non-GAAP
diluted earnings per share are calculated under our historical non-GAAP effective tax rate of 39.0%.
2016 Form 10-K
49
Blackbaud, Inc.
Non-GAAP organic revenue growth
In addition, we discuss non-GAAP organic revenue growth and non-GAAP organic revenue growth on a constant currency
basis. We use these measures internally in analyzing our operational performance because we believe they provide useful
information for evaluating the periodic growth of our business on a consistent basis. Non-GAAP organic revenue growth
excludes incremental acquisition-related revenue attributable to companies acquired in the current fiscal year. For companies
acquired in the immediately preceding fiscal year, non-GAAP organic revenue growth reflects presentation of full year
incremental non-GAAP revenue derived from such companies as if they were combined throughout the prior period, and
it includes the current period non-GAAP revenue attributable to those companies, as if there were no acquisition-related
write-downs of acquired deferred revenue to fair value as required by GAAP. In addition, non-GAAP organic revenue
growth excludes prior period revenue associated with divested businesses in the current fiscal year. The exclusion of the
prior period revenue is to present the results of the divested businesses within the results of the combined company for
the same period of time in both the prior and current periods. We believe this presentation provides a more comparable
representation of its current business’ organic revenue growth and revenue run-rate.
2016
Calculations of non-GAAP organic revenue growth, non-GAAP organic revenue growth on a constant currency basis and
non-GAAP recurring revenue growth for the full year of 2016, as well as reconciliations of those non-GAAP measures to
their most directly comparable GAAP measures, are as follows:
(dollars in millions)
GAAP revenue
(Less) Add: Non-GAAP acquisition-related revenue (1)
Less: Revenue from divested businesses (2)
Total Non-GAAP adjustments
Non-GAAP revenue (3)
Foreign currency impact on Non-GAAP revenue (4)
Non-GAAP revenue on constant currency basis (4)
Years ended December 31,
2016
730.8
3.6
—
3.6
734.5
4.2
738.6
Change
14.6% $
9.2% $
9.8% $
2015
637.9
35.5
(0.6)
34.9
672.8
—
672.8
$
$
$
$
GAAP subscriptions revenue
GAAP maintenance revenue
GAAP recurring revenue
(Less) Add: Non-GAAP acquisition-related revenue (1)
Less: Revenue from divested businesses (2)
Total Non-GAAP adjustments
Non-GAAP recurring revenue
(1) Non-GAAP acquisition-related revenue excludes incremental acquisition-related revenue calculated in accordance with GAAP that is attributable to
companies acquired in the current fiscal year. For companies acquired in the immediately preceding fiscal year, non-GAAP acquisition-related revenue
reflects presentation of full-year incremental non-GAAP revenue derived from such companies, as if they were combined throughout the prior
period, and it includes the current period non-GAAP revenue from the acquisition-related deferred revenue write-down attributable to those
companies.
331.8
153.8
485.6
34.5
(0.4)
34.1
519.7
429.0
146.9
575.9
3.6
—
3.6
579.6
18.6% $
11.5% $
$
$
$
(2) For businesses divested in the prior fiscal year, non-GAAP organic revenue growth excludes revenue associated with divested businesses. The
exclusion of the prior period revenue is to present the results of the divested business with the results of the combined company for the same period
of time in both the prior and current periods.
(3) Non-GAAP revenue for the prior year periods presented herein will not agree to non-GAAP revenue presented in the respective prior period quarterly
financial information solely due to the manner in which non-GAAP organic revenue growth is calculated.
(4) To determine non-GAAP organic revenue growth on a constant currency basis, revenues from entities reporting in foreign currencies were translated
to U.S. Dollars using the comparable prior period's quarterly weighted average foreign currency exchange rates. The primary foreign currencies
creating the impact are the Canadian Dollar, EURO, British Pound and Australian Dollar.
50
2016 Form 10-K
Blackbaud, Inc.
2015
Calculations of non-GAAP organic revenue growth and non-GAAP organic revenue growth on a constant currency basis
for the full year of 2015, as well as reconciliations of those non-GAAP measures to their most directly comparable GAAP
measures, are as follows:
(dollars in millions)
Years ended December 31,
2015
Change
2014
$
GAAP revenue
(Less) Add: Non-GAAP acquisition-related revenue (1)
Less: Revenue from divested businesses (2)
Total Non-GAAP adjustments
Non-GAAP revenue (3)
Foreign currency impact on Non-GAAP revenue (4)
Non-GAAP revenue on constant currency basis (4)
(1) Non-GAAP acquisition-related revenue excludes incremental acquisition-related revenue calculated in accordance with GAAP that is attributable to
companies acquired in the current fiscal year. For companies acquired in the immediately preceding fiscal year, non-GAAP acquisition-related revenue
reflects presentation of full-year incremental non-GAAP revenue derived from such companies, as if they were combined throughout the prior
period, and it includes the current period non-GAAP revenue from the acquisition-related deferred revenue write-down attributable to those
companies.
637.9
(0.9)
—
(0.9)
637.1
9.6
646.7
564.4
37.4
(1.3)
36.2
600.6
—
600.6
13.0% $
7.7% $
6.1% $
$
$
(2) For businesses divested in the current fiscal year, non-GAAP organic revenue growth excludes a portion of the prior year period revenue associated
with businesses divested of in the current fiscal year. The exclusion of the prior period revenue is to present the results of the divested business with
the results of the combined company for the same period of time in both the prior and current periods.
(3) Non-GAAP revenue for the prior year periods presented herein will not agree to non-GAAP revenue presented in the respective prior period quarterly
financial information solely due to the manner in which non-GAAP organic revenue growth is calculated.
(4) To determine non-GAAP organic revenue growth on a constant currency basis, revenues from entities reporting in foreign currencies were translated
to U.S. Dollars using the comparable prior period's quarterly weighted average foreign currency exchange rates. The primary foreign currencies
creating the impact are the Canadian Dollar, EURO, British Pound and Australian Dollar.
Seasonality
Our revenues normally fluctuate as a result of certain seasonal variations in our business. Our revenue from professional
services has historically been lower in the first quarter when many of those services commence and in the fourth quarter
due to the holiday season. In addition, our transaction revenue has historically been at its lowest in the first quarter due
to the timing of customer fundraising initiatives and events. Our revenue from payment processing services has also
historically increased during the fourth quarter due to year-end giving. As a result of these and other factors, our total
revenue has historically been lower in the first quarter than in the remainder of our fiscal year, with the third and fourth
quarters historically achieving the highest total revenues. Our expenses, however, do not vary significantly as a result of
these factors, but do fluctuate on a quarterly basis due to varying timing of expenditures. Our cash flow from operations
normally fluctuates quarterly due to the combination of the timing of customer contract renewals including renewals
associated with customers of acquired companies, delivery of professional services and occurrence of customer events, the
payment of bonuses, as well as merit-based salary increases, among other factors. Historically, due to lower revenues in
our first quarter, combined with the payment of bonuses from the prior year in our first quarter, our cash flow from
operations has been lowest in our first quarter, and due to the timing of customer contract renewals, many of which take
place at or near the beginning of our third quarter, our cash flow from operations has been lower in our second quarter
as compared to our third and fourth quarters. Partially offsetting these favorable drivers of cash flow from operations in
our third and fourth quarters are merit-based salary increases, which are generally effective in April each year. In addition,
deferred revenues can vary on a seasonal basis for the same reasons. These patterns may change as a result of the continued
shift to online giving, growth in volume of transactions for which we process payments, acquisitions, new market
opportunities, new solution introductions or other factors.
2016 Form 10-K
51
Blackbaud, Inc.
Liquidity and Capital Resources
The following table presents selected financial information about our financial position:
(dollars in millions)
Cash and cash equivalents
Property and equipment, net
Software development costs, net
Total carrying value of debt
Working capital
Working capital excluding deferred revenue
December 31,
2016
16.9
$
Change
10.0 % $
December 31,
2015
15.4
50.3
37.6
(4.5)%
92.2 %
342.4
(16.1)%
(172.2)
72.3
(3.0)%
14.7 %
52.7
19.6
408.1
(167.2)
63.0
The following table presents selected financial information about our cash flows:
Years ended December 31,
(dollars in millions)
Net cash provided by operating activities
2016
153.6
$
Change
18.9 % $
Net cash used in investing activities
(47.4)
(78.7)%
Net cash (used in) provided by financing activities
(104.5)
(209.5)%
2015
129.2
(222.7)
95.5
Change
10.6 % $
5.4 %
(2.0)%
2014
116.9
(211.4)
97.4
Our principal sources of liquidity are operating cash flow, funds available under the 2014 Credit Facility and cash on hand.
Our operating cash flow depends on continued customer renewal of our subscription, maintenance and support
arrangements and market acceptance of our solutions and services. Based on current estimates of revenue and expenses,
we believe that the currently available sources of funds and anticipated cash flows from operations will be adequate for
at least the next twelve months to finance our operations, fund anticipated capital expenditures, meet our debt obligations
and pay dividends. Dividend payments are not guaranteed and our Board of Directors may decide, in its absolute discretion,
at any time and for any reason, not to declare and pay further dividends and/or repurchase our common stock. To the
extent we undertake future material acquisitions, investments or unanticipated capital expenditures, we may require
additional capital. In that context, we regularly evaluate opportunities to enhance our capital structure including through
potential security issuances.
As discussed in Note 2 of our consolidated financial statements in this report, we early adopted ASU 2016-09 during 2016
which, due to retrospective application of amendments related to cash flow presentation, increased previously reported
net cash provided by operating activities and decreased net cash provided by financing activities by $14.9 million for the
year ended December 31, 2015 and by $14.6 million for the year ended December 31, 2014. For a detailed discussion of
ASU 2016-09 and its effects upon adoption, refer to Note 2 of our consolidated financial statements in this report.
At December 31, 2016, our total cash and cash equivalents balance included approximately $5.8 million of cash that was
held outside the U.S. While these funds may not be needed to fund our U.S. operations for at least the next twelve months,
if we need these funds, we may be required to accrue and pay taxes to repatriate a portion of these funds. We currently
do not intend nor anticipate a need to repatriate our cash held outside the U.S.
Operating cash flow
Throughout 2016, 2015 and 2014, our cash flows from operations were derived principally from: (i) our earnings from
on-going operations prior to non-cash expenses such as depreciation, amortization, stock-based compensation, loss on
sale of business, impairment of capitalized software development costs, loss on debt extinguishment and termination of
derivative instruments, amortization of deferred financing costs and debt discount and adjustments to our provision for
sales returns and allowances; and (ii) changes in our working capital.
Working capital changes are composed of changes in accounts receivable, prepaid expenses and other assets, trade accounts
payable, accrued expenses and other liabilities, and deferred revenue.
52
2016 Form 10-K
Blackbaud, Inc.
2016 vs. 2015
Cash flow from operations associated with working capital decreased $7.3 million during 2016 when compared to 2015,
primarily due to:
•
•
•
an increase in current period bonus payments as a result of an increase in amounts accrued as of December 31,
2015 for over-performance against 2015 targets, as well as a change in the timing of payouts for certain bonus
plans, from semi-annually to quarterly;
a larger increase in trade accounts payable during 2015 than in 2016; partially offset by
the use of and reduction in amounts prepaid for incomes taxes.
2015 vs. 2014
Cash flow from operations associated with working capital decreased $3.6 million during 2015 when compared to 2014,
primarily due to:
•
•
•
•
an increase in current year bonus payments from a prior year change in the timing of payouts for certain bonus
plans, from quarterly to annually, partially offset by an increase in amounts accrued for current year performance
against current year targets;
a decrease in the growth rate of deferred revenue which was primarily attributable to the fair value of acquired
deferred revenues and billing cycles of acquired companies, partially offset by
fluctuations in the timing of vendor payments; and
a reduction in cash taxes paid.
Investing cash flow
During 2017, we expect capital expenditures between approximately $37.5 million and $42.5 million, which includes
purchases of property and equipment and estimated cash outlays for capitalized software development costs. Refer to the
commitments and contingencies subsection below for future minimum commitments related to purchase obligations.
2016 vs. 2015
Net cash used in investing activities of $47.4 million decreased by $175.3 million during 2016, when compared to 2015.
During 2016, we used $26.4 million of cash for software development costs, which was up $10.9 million from cash spent
during 2015. The increase in cash outlays for software development costs was primarily driven by development activities
related to our next generation NXT and Luminate cloud-based solutions.
We spent $17.7 million of cash for purchases of property and equipment during 2016, which was relatively consistent
with the amount spent in 2015, as we continued to invest in our information technology platforms and infrastructure used
in the delivery of our solutions to customers as well as various facilities upgrades.
During 2016, we used $3.9 million of cash for the acquisition of Attentive.ly and received an insignificant post-closing
working capital adjustment associated with the prior year acquisition of Smart Tuition compared to $187.8 million used
in 2015 for the acquisition of Smart Tuition.
2015 vs. 2014
Net cash used in investing activities of $222.7 million increased by $11.3 million during 2015, when compared to 2014.
During 2015, we had cash outlays of $18.6 million and $15.5 million for purchases of property and equipment and software
development costs, respectively, which were up $4.7 million and $6.9 million, respectively, from cash spent during 2014.
The increase in cash outlays for property and equipment were primarily driven by investments in our information technology
infrastructure, technology platforms and infrastructure used in the delivery of our cloud-based solutions to customers,
various facilities upgrades at a number of our U.S. and international locations, as well as incremental property and equipment
costs from 2014 business acquisitions. The increase in cash outlays for software development costs was primarily driven
2016 Form 10-K
53
Blackbaud, Inc.
by development activities related to our Raiser's Edge NXT and Financial Edge NXT cloud-based solutions, development
activities for other solutions and the inclusion of software development costs related to solutions historically provided by
companies acquired in 2014.
During 2015, we used $187.8 million of cash for the acquisition of Smart Tuition compared to $188.9 million used in 2014
for the acquisitions of WhippleHill and MicroEdge.
Financing cash flow
2016 vs. 2015
During 2016, we had a net decrease in borrowings of $66.4 million and paid dividends of $22.8 million, which was relatively
consistent with the amount paid in 2015.
2015 vs. 2014
During 2015, we had a net increase in borrowings of $127.8 million, which was primarily used to finance the acquisition
of Smart Tuition. Cash outlays related to deferred financing fees decreased in 2015 as we refinanced our credit facility in
2014. Also during 2015, we paid dividends of $22.5 million, which was relatively consistent with the amount paid in 2014.
2014 Credit Facility
We have drawn on our five-year $325.0 million credit facility (the "2014 Credit Facility") from time to time to help us meet
financial needs, such as financing for business acquisitions. In order to finance our acquisitions of MicroEdge and Smart
Tuition during 2014 and 2015, respectively, we exercised an option in the 2014 Credit Facility to request increases in the
revolving commitments in an aggregate principal amount of up to $200.0 million. At December 31, 2016, our available
borrowing capacity under the 2014 Credit Facility was $165.8 million. We believe the 2014 Credit Facility will provide us
with sufficient flexibility to meet our future financial needs. The 2014 Credit Facility matures in February 2019.
At December 31, 2016, the carrying amount of our debt under the 2014 Credit Facility was $342.4 million. Our average
daily borrowings were $392.5 million during 2016.
Following is a summary of the financial covenants under the 2014 Credit Facility:
Financial Covenant
Net Leverage Ratio
Interest Coverage Ratio
Requirement
Ratio as of December 31, 2016
2.06 to 1.00
15.95 to 1.00
Under the 2014 Credit Facility, we also have restrictions on our ability to declare and pay dividends and our ability to
repurchase shares of our common stock. In order to pay any cash dividends and/or repurchase shares of stock: (i) no default
or event of default shall have occurred and be continuing under the 2014 Credit Facility, and (ii) our pro forma net leverage
ratio, as set forth in the credit agreement, must be 0.25 less than the net leverage ratio requirement at the time of dividend
declaration or share repurchase. At December 31, 2016, we were in compliance with our debt covenants under the 2014
Credit Facility.
54
2016 Form 10-K
Blackbaud, Inc.
Commitments and contingencies
As of December 31, 2016, we had contractual obligations with future minimum commitments as follows:
(in millions)
Recorded contractual obligations:
Debt(1)
Interest payments on debt(2)
Unrecorded contractual obligations:
Operating leases(3)
Interest payments on debt(4)
Purchase obligations(5)
Total contractual obligations
Payments due by period
Total
Less than 1
year
1-3 years
3-5 years
More than 5
years
$
343.9 $
4.4 $
339.5 $
0.2
0.2
—
— $
—
—
—
194.2
18.0
38.2
17.7
8.4
16.0
36.8
9.6
19.5
32.8
—
2.7
106.9
—
—
$
594.5 $
46.7 $
405.4 $
35.5 $
106.9
(1) Represents principal payments only, under the following assumptions: (i) that the amounts outstanding under the 2014 Credit Facility at December 31,
2016 will remain outstanding until maturity, with minimum payments occurring as currently scheduled, and (ii) that there are no assumed future
borrowings on the 2014 Credit Facility for the purposes of determining minimum commitment amounts.
(2) Represents interest payment obligations related to our interest rate swap agreements.
(3) Our commitments related to operating leases have not been reduced by incentive payments and reimbursement of leasehold improvements.
(4) The actual interest expense recognized in our consolidated statements of comprehensive income will depend on the amount of debt, the length
of time the debt is outstanding and the interest rate, which could be different from our assumptions described in (1) above.
(5) We utilize third-party technology in conjunction with our solutions and services, with contractual arrangements varying in length from one to five
years. In certain cases, these arrangements require a minimum annual purchase commitment by us.
The term loan under the 2014 Credit Facility requires periodic principal payments. The balance of the term loans and any
amounts drawn on the revolving credit loans are due upon maturity of the 2014 Credit Facility in February 2019.
The total liability for uncertain tax positions as of December 31, 2016 and December 31, 2015, was $3.1 million and $3.0
million, respectively. Our accrued interest and penalties related to tax positions taken on our tax returns was insignificant
as of December 31, 2016 and December 31, 2015.
In February 2017, our Board of Directors approved our annual dividend rate of $0.48 per share to be made in quarterly
payments. Dividends at this annual rate would aggregate to $23.0 million assuming 48.0 million shares of our common
stock are outstanding, although dividends are not guaranteed and our Board of Directors may decide, in its absolute
discretion, to change or suspend dividend payments at any time for any reason. Our ability to continue to declare and pay
dividends quarterly this year and beyond might be restricted by, among other things, the terms of the 2014 Credit Facility,
general economic conditions and our ability to generate adequate operating cash flow.
On February 8, 2017, our Board of Directors declared a first quarter dividend of $0.12 per share payable on March 15,
2017 to stockholders of record on February 28, 2017.
Lease for New Headquarters Facility
In May 2016, we entered into a lease agreement for a New Headquarters Facility to be built in Charleston, South Carolina.
For a detailed discussion of the New Headquarters Facility, see Note 11 of our consolidated financial statements in this
report.
Off-Balance Sheet Arrangements
As of December 31, 2016, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation
S-K promulgated by the SEC, that have or are reasonably likely to have, a current or future effect on our financial condition,
changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.
2016 Form 10-K
55
Blackbaud, Inc.
Foreign Currency Exchange Rates
Approximately 10% of our total revenue for 2016 was generated by operations outside the U.S. We do not have significant
operations in countries in which the economy is considered to be highly inflationary. Our consolidated financial statements
are denominated in U.S. dollars and, accordingly, changes in the exchange rate between foreign currencies and the U.S.
dollar will affect the translation of our subsidiaries’ financial results into U.S. dollars for purposes of reporting our consolidated
financial results. The accumulated currency translation adjustment, recorded within other comprehensive loss as a
component of stockholders’ equity, was a loss of $0.5 million and $0.8 million as of December 31, 2016 and December 31,
2015, respectively.
The vast majority of our contracts are entered into by our U.S. or U.K. entities. The contracts entered into by the U.S. entity
are almost always denominated in U.S. dollars or Canadian dollars, and contracts entered into by our U.K., Australian and
Irish subsidiaries are generally denominated in British Pounds, Australian dollars and Euros, respectively. Historically, as the
U.S. dollar weakened, foreign currency translation resulted in an increase in our revenues and expenses denominated in
non-U.S. currencies. Conversely, as the U.S. dollar strengthened, foreign currency translation resulted in a decrease in our
revenue and expenses denominated in non-U.S. currencies. During 2016, foreign translation resulted in a decrease in our
revenues and expenses denominated in non-U.S. currencies. Though we have exposure to fluctuations in currency exchange
rates, the impact has generally not been material to our consolidated results of operations or financial position. During
2016, the fluctuation in foreign currency exchange rates reduced our total revenue and income from operations by
approximately $4.2 million and $1.0 million, respectively. During 2016 and 2015, the fluctuation in foreign currency
exchange rates reduced IBU revenue by approximately $2.9 million and $5.5 million, respectively. We will continue
monitoring such exposure and take action as appropriate. To determine the impacts on revenue (or income from operations)
from fluctuations in currency exchange rates, current period revenues (or income from operations) from entities reporting
in foreign currencies were translated into U.S. dollars using the comparable prior year period's weighted average foreign
currency exchange rates. These impacts are non-GAAP financial information and are not in accordance with, or an alternative
to, information prepared in accordance with GAAP.
Inflation
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If
our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs
through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.
In addition, if inflationary pressures impact the rate of giving to our customers, there could be adverse impacts to our
business, financial condition and results of operations.
Critical Accounting Estimates
Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States
("GAAP"). The preparation of these financial statements requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis,
we reconsider and evaluate our estimates and assumptions, including those that impact revenue recognition, long-lived
and intangible assets including goodwill, income taxes, and business combinations, among others.
We base our estimates on historical experience, current trends and various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results could materially differ from any of
our estimates under different assumptions or conditions. Our significant accounting policies are discussed in Note 2 of our
consolidated financial statements in this report. We believe the accounting estimates listed below are the most critical to
aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or
complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.
56
2016 Form 10-K
Blackbaud, Inc.
Revenue Recognition
Description
Judgments and Uncertainties
See Note 2 to our consolidated financial
statements in this report for a complete
discussion of our revenue recognition
policies.
Our revenue recognition accounting methodology
contains uncertainties because it requires us to make
significant estimates and assumptions, and to apply
judgment.
Effect if Actual Results Differ
From Assumptions
If we were to change any of these judgments
or estimates, it could cause a material
increase or decrease in the amount of
revenue or deferred revenue that we report in
a particular period.
We recognize revenue when all of the
following conditions are met:
(1) Persuasive evidence of an arrangement
exists;
(2) The solutions or services have been
delivered;
(3) The fee is fixed or determinable; and
(4) Collection of the resulting receivable is
probable.
To the extent that our customers are billed
for our solutions and services in advance of
meeting each of the conditions above, we
record such amounts in deferred revenue.
For example, for arrangements that have multiple
elements and include software licenses, we must
exercise judgment and use estimates in order to (1)
allocate the total price among the various elements
we must deliver; (2) determine whether undelivered
services are essential to the functionality of the
delivered solutions and services; (3) determine
whether vendor specific objective evidence ("VSOE")
of fair value exists for each undelivered element; and
(4) determine whether and when each element has
been delivered.
For arrangements that have multiple elements and
do not include software licenses, we must exercise
judgment and use estimates in order to (1)
determine whether and when each element has
been delivered; (2) determine the fair value of each
element using the selling price hierarchy of VSOE of
fair value if available, third-party evidence ("TPE") if
VSOE is not available, and best estimate of selling
price ("BESP") if neither VSOE nor TPE is available;
and (3) allocate the total price among the various
elements based on the relative selling price method.
In addition, we exercise judgment in certain
transactions when determining whether we should
recognize revenue based on the gross amount billed
to a customer (as a principle) or the net amount
retained (as an agent). These judgments are based
on the predominant weighting of factors identified
in accounting guidance.
Business Combinations
Description
Judgments and Uncertainties
We allocate the purchase price of an
acquired business to its identifiable assets
acquired and liabilities assumed at the
acquisition date based upon their estimated
fair values. The excess of the purchase price
over the amount allocated to the assets
acquired and liabilities assumed, if any, is
recorded as goodwill.
We use available information to estimate fair
values. We typically engage outside appraisal
firms to assist in the fair value determination
of long-lived and identifiable intangible
assets, and any other significant assets or
liabilities. We adjust the preliminary purchase
price allocation, as necessary, up to one year
after the acquisition closing date as we
obtain new information about facts and
circumstances that existed as of the closing
date.
Our purchase price allocation methodology contains
uncertainties because it requires us to make
significant estimates and assumptions, and to apply
judgment to estimate the fair value of assets
acquired and liabilities assumed, especially with
respect to long-lived and intangible assets.
Management estimates the fair value of assets
acquired and liabilities assumed based on quoted
market prices, the carrying value of the acquired
assets and widely accepted valuation techniques,
including discounted cash flows and market multiple
analyses.
Critical estimates in valuing intangible assets include,
but are not limited to, estimates about: future
expected cash flows from customer contracts and
relationships, proprietary technology and non-
compete agreements; the acquired company's brand
awareness and market position, the market
awareness of the acquired company's branded
technology solutions and services, assumptions
about the period of time the brands will continue to
be valuable; as well as expected costs to develop any
in-process research and development into
commercially viable solutions and estimated cash
flows from the projects when completed, and
discount rates. Our estimates of fair value are based
upon assumptions we believe to be reasonable, but
which are inherently uncertain and unpredictable.
Assumptions may be incomplete or inaccurate, and
unanticipated events and circumstances may occur.
Effect if Actual Results Differ
From Assumptions
If actual results are materially different than
the assumptions we used to determine fair
value of the assets acquired and liabilities
assumed through a business combination as
well as the estimated useful lives of the
acquired intangible assets, it is possible that
adjustments to the carrying values of such
assets and liabilities will have a material
impact on our financial position and results of
operations.
See Note 3 to our consolidated financial
statements in this report for information
regarding our significant acquisitions.
2016 Form 10-K
57
Blackbaud, Inc.
Income Taxes
Description
Judgments and Uncertainties
We make estimates and judgments in
accounting for income taxes. Our income tax
returns, like those of most companies, are
periodically audited by domestic and foreign
tax authorities.
We measure and recognize uncertain tax
positions. To recognize uncertain tax
positions, we must first determine if it is
more likely than not that the position will be
sustained upon audit. We must then
measure the benefit as the largest amount
that is more than 50% likely of being
realized upon ultimate settlement.
We make estimates in determining tax assets
and liabilities, which arise from differences in
the timing of recognition of revenue and
expense for tax and financial reporting
purposes. We record valuation allowances to
reduce our deferred tax assets to the amount
expected to be realized.
The calculation of our income tax provision requires
estimates due to transactions, credits and
calculations where the ultimate tax determination is
uncertain. Uncertainties arise as a consequence of
the actual source of taxable income between
domestic and foreign locations, the outcome of tax
audits and the ultimate utilization of tax credits.
Our effective income tax rate is also affected by
changes in the geographic distribution of our
earnings or losses, changes in tax law in jurisdictions
where we conduct business.
Significant judgment is required in the identification
and measurement of uncertain tax positions. Our
liability for unrecognized tax benefits contains
uncertainties because management is required to
make assumptions and to apply judgment to
estimate the exposures associated with our various
filing positions.
In assessing the adequacy of a recorded valuation
allowance significant judgment is required. We
consider all positive and negative evidence and a
variety of factors including the scheduled reversal of
deferred tax liabilities, historical and projected future
taxable income, and prudent and feasible tax
planning strategies.
Effect if Actual Results Differ
From Assumptions
Although we believe that the judgments and
estimates discussed herein are reasonable,
actual results could differ, and we may be
exposed to losses or gains that could be
material.
To the extent actual results differ from
estimated amounts recorded, such differences
will impact the income tax provision in the
period in which the determination is made.
If we determine there is less than a 50%
likelihood that we will be able to use a
deferred tax asset in the future in excess of its
net carrying value, then an adjustment to the
deferred tax asset valuation allowance is
made to increase income tax expense, thereby
reducing net income in the period such
determination was made.
Long-lived and Intangible Assets including Goodwill
Description
Judgments and Uncertainties
We review our long-lived and identifiable
intangible assets for impairment when events
or changes in circumstances indicate the
carrying amount may not be recoverable. If
such events or changes in circumstances
occur, we use the undiscounted cash flow
method to determine whether the asset is
impaired. To the extent that the carrying
value of the asset exceeds the undiscounted
cash flows over the estimated remaining life
of the asset, we measure the impairment
using discounted cash flows.
Goodwill is assigned to our three reporting
units, which are defined as our three
operating segments (see Note 7 to our
consolidated financial statements in this
report). We test goodwill for impairment
annually during our fourth quarter, or more
frequently if events or changes in
circumstances indicate that the asset might
be impaired. In general, we first assess
qualitative factors to determine whether it is
more likely than not that the fair value of a
reporting unit is less than its carrying
amount. To the extent the qualitative factors
indicate that the fair value is likely less than
the carrying amount, we compare the fair
value of the reporting unit with its carrying
amount. We estimate fair value for each
reporting unit based on projected future
cash flows discounted using our weighted
average cost of capital. If the carrying
amount exceeds its fair value, impairment is
indicated. If an impairment is indicated, the
impairment loss is measured as the excess of
the recorded goodwill over its fair value.
We use significant judgment in assessing qualitative
factors to determine whether events and
circumstances indicate that it is more than 50%
likely that an indefinite-lived intangible asset is
impaired.
When measuring impairment of an asset using
discounted cash flows, we make assumptions and
apply judgment in estimating future cash flows and
asset fair values, including annual revenue growth
rates, a terminal year growth rate and selecting a
discount rate that reflects the risk inherent in future
cash flows.
When the optional qualitative assessment of
goodwill impairment is performed, significant
judgment is required in the assessment of qualitative
factors including but not limited to an evaluation of
macroeconomic conditions as they relate to our
business, industry and market trends, as well as the
overall future financial performance of our reporting
units and future opportunities in the markets in
which they operate.
A number of significant assumptions and estimates
are involved in estimating the fair value of each
reporting unit, including revenue growth rates,
operating margins, capital spending, discount rate,
and working capital changes. Additionally, we make
certain judgments and assumptions in allocating
assets and liabilities to determine the carrying values
for each of our reporting units.
Effect if Actual Results Differ
From Assumptions
We have not made any material changes in
the accounting methodology we use to assess
impairment loss during the years ended
December 31, 2016, 2015 and 2014.
No impairments to our long-lived and
intangible assets including goodwill occurred
during the year ended December 31, 2016.
During the year ended December 31, 2015,
we recorded insignificant impairment charges
against previously capitalized software
development costs. During the year ended
December 31, 2014, we recorded impairment
charges of $1.6 million against certain
previously capitalized software development
costs. The charges reduced the carrying value
of those costs to zero. The impairment
charges resulted from obtaining software
solutions through the acquisitions of Smart
Tuition in 2015 and WhippleHill in 2014 and
determining that it was no longer probable
that certain computer software that was
being developed would be placed into service.
We do not believe there is a reasonable
likelihood that there will be a material change
in the future estimates or assumptions we use
to assess impairment losses. However, if
actual results are not consistent with our
estimates or assumptions, we may be exposed
to an impairment charge that could materially
adversely impact our consolidated financial
position and results of operations.
58
2016 Form 10-K
Blackbaud, Inc.
Recently Issued Accounting Pronouncements
For a discussion of the impact that recently issued accounting pronouncements are expected to have on our financial
position and results of operations when adopted in the future, see Note 2 of our consolidated financial statements in this
report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
We have market rate sensitivity for interest rates and foreign currency exchange rates.
Interest Rate Risk
Our variable rate debt is our primary financial instrument with market risk exposure for changing interest rates. We manage
our variable rate interest rate risk through a combination of short-term and long-term borrowings and the use of derivative
instruments entered into for hedging purposes. Due to the nature of our debt, the materiality of the fair values of the
derivative instruments and the highly liquid, short-term nature and level of our cash and cash equivalents as of December 31,
2016, we believe there is no material risk of exposure to changing interest rates for those positions. There were no significant
changes in how we manage interest rate risk between December 31, 2015 and December 31, 2016.
Foreign Currency Risk
For a discussion of our exposure to foreign currency exchange rate fluctuations, see “Management’s discussion and analysis
of financial condition and results of operations — Foreign Currency Exchange Rates” in Item 7 this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BLACKBAUD, INC.
Index to consolidated financial statements
Report of independent registered public accounting firm
Consolidated balance sheets as of December 31, 2016 and 2015
Consolidated statements of comprehensive income for the years ended December 31, 2016, 2015 and 2014
Consolidated statements of cash flows for the years ended December 31, 2016, 2015 and 2014
Consolidated statements of stockholders’ equity for the years ended December 31, 2016, 2015 and 2014
Notes to consolidated financial statements
Page No.
60
61
62
63
64
65
2016 Form 10-K
59
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Blackbaud, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of comprehensive
income, of cash flows, and of stockholders’ equity present fairly, in all material respects, the financial position of Blackbaud,
Inc. and its subsidiaries at December 31, 2016 and 2015, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in
the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company's management is responsible for these financial statements, for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's
Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements
and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits
in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts
for stock compensation in 2016.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/S/ PRICEWATERHOUSECOOPERS LLP
Charlotte, North Carolina
February 22, 2017
60
2016 Form 10-K
Blackbaud, Inc.
Consolidated balance sheets
(dollars in thousands)
Assets
Current assets:
Cash and cash equivalents
Restricted cash due to customers
Accounts receivable, net of allowance of $3,291 and $4,943 at December
31, 2016 and December 31, 2015, respectively
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Software development costs, net
Goodwill
Intangible assets, net
Other assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable
Accrued expenses and other current liabilities
Due to customers
Debt, current portion
Deferred revenue, current portion
Total current liabilities
Debt, net of current portion
Deferred tax liability
Deferred revenue, net of current portion
Other liabilities
Total liabilities
Commitments and contingencies (see Note 11)
Stockholders’ equity:
December 31,
2016
December 31,
2015
$
16,902 $
$
$
353,771
88,932
48,314
507,919
50,269
37,582
438,240
253,676
22,524
1,310,210 $
23,274 $
54,196
353,771
4,375
244,500
680,116
338,018
29,558
6,440
8,533
1,062,665
15,362
255,038
80,046
48,666
399,112
52,651
19,551
436,449
294,672
20,901
1,223,336
19,208
57,461
255,038
4,375
230,216
566,298
403,712
27,996
7,119
7,623
1,012,748
Preferred stock; 20,000,000 shares authorized, none outstanding
—
—
Common stock, $0.001 par value; 180,000,000 shares authorized,
57,672,401 and 56,873,817 shares issued at December 31, 2016 and
December 31, 2015, respectively
Additional paid-in capital
Treasury stock, at cost; 10,166,801 and 9,903,071 shares at December 31,
2016 and December 31, 2015, respectively
Accumulated other comprehensive loss
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
58
310,452
57
276,340
(215,237)
(457)
152,729
247,545
1,310,210 $
(199,861)
(825)
134,877
210,588
1,223,336
$
The accompanying notes are an integral part of these consolidated financial statements.
2016 Form 10-K
61
Blackbaud, Inc.
Consolidated statements of comprehensive income
(dollars in thousands, except per share amounts)
2016
2015
2014
Years ended December 31,
Revenue
Subscriptions
Maintenance
Services
License fees and other
Total revenue
Cost of revenue
Cost of subscriptions
Cost of maintenance
Cost of services
Cost of license fees and other
Total cost of revenue
Gross profit
Operating expenses
Sales, marketing and customer success
Research and development
General and administrative
Amortization
Total operating expenses
Income from operations
Interest expense
Other expense, net
Income before provision for income taxes
Income tax provision
Net income
Earnings per share
Basic
Diluted
Common shares and equivalents outstanding
Basic weighted average shares
Diluted weighted average shares
Dividends per share
Other comprehensive income
Foreign currency translation adjustment
Unrealized gain on derivative instruments, net of tax
Total other comprehensive income
Comprehensive income
$
428,987 $
146,946
139,690
15,192
730,815
331,759 $
153,801
132,978
19,402
637,940
213,883
22,094
96,488
6,755
339,220
391,595
167,341
27,066
102,815
7,409
304,631
333,309
155,754
89,870
81,331
2,840
329,795
61,800
(10,583)
(291)
50,926
9,411
41,515 $
123,646
84,636
76,084
2,231
286,597
46,712
(8,073)
(1,687)
36,952
11,303
25,649 $
263,435
147,418
128,371
25,197
564,421
133,221
25,448
106,506
8,263
273,438
290,983
107,360
77,179
58,277
1,803
244,619
46,364
(6,011)
(1,119)
39,234
10,944
28,290
$
$
$
0.90 $
0.88 $
0.56 $
0.55 $
0.63
0.62
46,132,389 45,623,854 45,215,138
47,316,538 46,498,704 45,799,874
0.48
$
0.48 $
0.48 $
324
44
368
41,883 $
62
145
207
25,856 $
261
92
353
28,643
$
The accompanying notes are an integral part of these consolidated financial statements.
62
2016 Form 10-K
Blackbaud, Inc.
Consolidated statements of cash flows
(dollars in thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Provision for doubtful accounts and sales returns
Stock-based compensation expense
Deferred taxes
Loss on sale of business
Impairment of capitalized software development costs
Loss on debt extinguishment and termination of derivative instruments
Amortization of deferred financing costs and discount
Other non-cash adjustments
Changes in operating assets and liabilities, net of acquisition and disposal
of businesses:
Accounts receivable
Prepaid expenses and other assets
Trade accounts payable
Accrued expenses and other liabilities
Restricted cash due to customers
Due to customers
Deferred revenue
Net cash provided by operating activities
Cash flows from investing activities
Purchase of property and equipment
Capitalized software development costs
Purchase of net assets of acquired companies, net of cash
Net cash used in sale of business
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of debt
Payments on debt
Debt issuance costs
Employee taxes paid for withheld shares upon equity award settlement
Proceeds from exercise of stock options
Dividend payments to stockholders
Net cash (used in) provided by financing activities
Effect of exchange rate on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosure of cash flow information
Cash (paid) received during the year for:
Interest
Taxes, net of refunds
Purchase of equipment and other assets included in accounts payable
Years ended December 31,
2016
2015
2014
$ 41,515 $ 25,649 $ 28,290
70,491
3,730
32,638
3,033
—
—
—
958
(864)
55,997
6,825
25,246
3,165
1,976
239
—
899
(197)
45,417
5,248
17,345
3,050
—
1,626
996
734
1,163
(13,196)
(2,478)
3,689
(751)
(96,000)
96,000
14,863
153,628
(7,593)
(10,979)
6,133
9,255
(34,279)
34,279
12,612
129,227
(5,750)
(8,464)
(948)
11,166
(33,510)
33,510
17,011
116,884
(17,694)
(26,359)
(3,377)
—
(47,430)
(18,633)
(15,481)
(188,072)
(521)
(222,707)
(13,911)
(8,535)
(188,918)
—
(211,364)
227,200
(293,575)
—
(15,376)
16
(22,811)
(104,546)
(112)
1,540
15,362
365,100
(235,589)
(3,003)
(7,152)
188
(22,107)
97,437
(111)
2,846
11,889
$ 16,902 $ 15,362 $ 14,735
312,300
(184,475)
(429)
(9,421)
32
(22,508)
95,499
(1,392)
627
14,735
(9,608)
(1,340)
(3,155)
(7,208)
(4,795)
(3,204)
(4,894)
(9,581)
(3,300)
The accompanying notes are an integral part of these consolidated financial statements.
2016 Form 10-K
63
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Blackbaud, Inc.
Notes to consolidated financial statements
1. Organization
We are the world’s leading cloud software company powering social good. Serving the entire social good community—
nonprofits, foundations, corporations, education institutions, and individual change agents—we connect and empower
organizations to increase their impact through software, services, expertise, and data intelligence. Our portfolio is tailored
to the unique needs of vertical markets, with solutions for fundraising and relationship management, digital marketing,
advocacy, accounting, payments, analytics, school management, grant management, corporate social responsibility and
volunteerism. Serving the industry for more than three decades, we are headquartered in Charleston, South Carolina and
have operations in the United States, Australia, Canada, Ireland and the United Kingdom. As of December 31, 2016, we
had approximately 35,000 customers.
2. Summary of Significant Accounting Policies
Basis of presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
the United States (“GAAP”).
Basis of consolidation
The consolidated financial statements include the accounts of Blackbaud, Inc. and its wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. On an
ongoing basis, we reconsider and evaluate our estimates and assumptions, including those that impact revenue recognition,
long-lived and intangible assets including goodwill, income taxes, business combinations, stock-based compensation,
capitalization of software development costs, our allowances for sales returns and doubtful accounts, deferred sales
commissions and professional services costs, valuation of derivative instruments and loss contingencies. Changes in the
facts or circumstances underlying these estimates could result in material changes and actual results could materially differ
from these estimates.
Revenue recognition
Our revenue is primarily generated from the following sources: (i) charging for the use of our software solutions in cloud-
based and hosted environments; (ii) providing software maintenance and support services; (iii) providing professional
services including implementation, training, consulting, analytic, hosting and other services; (iv) providing transaction and
payment processing services; and (v) selling perpetual licenses of our software solutions.
We commence revenue recognition when all of the following conditions are met:
•
•
•
•
Persuasive evidence of an arrangement exists;
The solutions or services have been or are being provided to the customer;
The fee is fixed or determinable; and
Collection of the resulting receivable is probable.
Determining whether and when these criteria have been met can require significant judgment and estimates. We deem
acceptance of a contract to be evidence of an arrangement. Delivery of our services occurs when the services have been
2016 Form 10-K
65
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
performed. Delivery of our solutions occurs when the solution is shipped or made available to the customers. Our typical
arrangements do not include customer acceptance provisions; however, if acceptance provisions are provided, delivery is
deemed to occur upon acceptance. We consider the fee to be fixed or determinable unless the fee is subject to refund or
adjustment or is not payable within our standard payment terms. Payment terms greater than 90 days are considered to
be beyond our customary payment terms. Collection is deemed probable if we expect that the customer will be able to
pay amounts under the arrangement as they become due. If we determine that collection is not probable, we defer revenue
recognition until collection. Revenue is recognized net of actual and estimated sales returns and allowances.
We follow guidance provided in ASC 605-45, Principal Agent Considerations, which states that determining whether
a company should recognize revenue based on the gross amount billed to a customer or the net amount retained is a
matter of judgment that depends on the facts and circumstances of the arrangement and that certain factors should be
considered in the evaluation.
Subscriptions
We provide software solutions to customers which are available for use in cloud-based subscription arrangements without
licensing perpetual rights to the software (“cloud-based solutions”). Revenue from cloud-based solutions is recognized
ratably beginning on the activation date over the term of the agreement, which generally ranges from one to three years.
Any revenue related to upfront activation or set-up fees is deferred and recognized ratably over the estimated period that
the customer benefits from the related cloud-based solution. Direct and incremental costs related to upfront activation or
set-up activities for cloud-based solutions are capitalized until the cloud-based solution is deployed and in use, and then
expensed ratably over the estimated period that the customer benefits from the related cloud-based solution.
We provide hosting services to customers who have purchased perpetual rights to certain of our software solutions (“hosting
services”). Revenue from hosting services, online training programs as well as subscription-based analytic services such as
data enrichment and data management services, is recognized ratably beginning on the activation date over the term of
the agreement, which generally ranges from one to three years. Any related set-up fees are recognized ratably over the
estimated period that the customer benefits from the related hosting service. The estimated period of benefit is evaluated
on an annual basis using historical customer retention information by solution or service.
For arrangements that have multiple elements and do not include software licenses, we allocate arrangement consideration
at the inception of the arrangement to those elements that qualify as separate units of accounting. The arrangement
consideration is allocated to the separate units of accounting based on relative selling price method in accordance with
the selling price hierarchy, which includes: (i) vendor specific objective evidence (“VSOE”) of fair value if available; (ii) third-
party evidence (“TPE”) if VSOE is not available; and (iii) best estimate of selling price (“BESP”) if neither VSOE nor TPE is
available. In general, we use VSOE to allocate the selling price to subscription and service deliverables.
We offer certain payment processing services with the assistance of third-party vendors. In general, when we are the
principal in a transaction based on the predominant weighting of factors identified in ASC 605-45, we record the revenue
and related costs on a gross basis. Otherwise, we net the cost of revenue associated with the service against the gross
amount billed to the customer and record the net amount as revenue.
Revenue from transaction processing services is recognized when the service is provided and the amounts are determinable.
Revenue directly associated with processing donations for customers are included in subscriptions revenue.
Maintenance
We recognize revenue from maintenance services ratably over the term of the arrangement, generally one year at contract
inception with annual renewals thereafter. Maintenance contracts are at rates that vary according to the level of the
maintenance program associated with the software solution and are generally renewable annually. Maintenance contracts
may also include the right to unspecified solution upgrades on an if-and-when available basis. Certain incremental support
services are sold in prepaid units of time and recognized as revenue upon their usage.
66
2016 Form 10-K
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
Services
We generally bill consulting, installation and implementation services based on hourly rates plus reimbursable travel-related
expenses. Revenue is recognized for these services over the period the services are delivered.
We recognize analytic services revenue from donor prospect research engagements, the sale of lists of potential donors,
benchmarking studies and data modeling service engagements upon delivery. In arrangements where we provide customers
the right to updated information during the contract period, revenue is recognized ratably over the contract period.
We sell fixed-rate programs, which permit customers to attend unlimited training over a specified contract period, typically
one year, subject to certain restrictions, and revenue in those cases is recognized ratably over the contract period.
Additionally, we sell training at a fixed rate for each specific class at a per attendee price or at a packaged price for several
attendees, and recognize the related revenue upon the customer attending and completing training.
License fees
We sell perpetual software licenses with maintenance, varying levels of professional services and, in certain instances, with
hosting services. We allocate revenue to each of the elements in these arrangements using the residual method under
which we first allocate revenue to the undelivered elements, typically the non-software license components, based on
VSOE of fair value of the various elements. We determine VSOE of fair value of the various elements using different methods.
VSOE of fair value for maintenance services associated with software licenses is based upon renewal rates stated in the
arrangements with customers, which demonstrate a consistent relationship of maintenance pricing as a percentage of the
contractual license fee. VSOE of fair value of professional services and other solutions and services is based on the average
selling price of these same solutions and services to other customers when sold on a stand-alone basis. Any remaining
revenue is allocated to the delivered elements, which is normally the software license in the arrangement. In general,
revenue is recognized for software licenses upon delivery to our customers.
When a software license is sold with software customization services, generally the services are to provide the customer
assistance in creating special reports and other enhancements that will improve operational efficiency and/or help to support
business process improvements. These services are generally not essential to the functionality of the software and the
related revenues are recognized either as the services are delivered or upon completion. However, when software
customization services are considered essential to the functionality of the software, we recognize revenue for both the
software license and the services using the percentage-of-completion method.
Deferred revenue
To the extent that our customers are billed for the above described solutions and services in advance of delivery, we record
such amounts in deferred revenue. Generally, our subscription and maintenance customers are billed one year in advance.
Fair value measurements
We measure certain financial assets and liabilities at fair value on a recurring basis, including derivative instruments. Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly
transaction between market participants at the measurement date. An active market is defined as a market in which
transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an
ongoing basis. We use a three-tier fair value hierarchy to measure fair value. This hierarchy prioritizes the inputs into three
broad levels as follows:
•
•
Level 1 - Quoted prices for identical assets or liabilities in active markets;
Level 2 - Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar
assets in markets that are not active, and model-derived valuations in which all significant inputs and significant
value drivers are observable in active markets; and
•
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are unobservable.
2016 Form 10-K
67
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
Our financial assets and liabilities are classified in their entirety within the hierarchy based on the lowest level of input that
is significant to fair value measurement. Changes to a financial asset's or liability's level within the fair value hierarchy are
determined as of the end of a reporting period. All methods of assessing fair value result in a general approximation of
value, and such value may never actually be realized.
Derivative instruments
We use derivative instruments to manage interest rate risk. We view derivative instruments as risk management tools and
do not use them for trading or speculative purposes. Our policy requires that derivatives used for hedging purposes be
designated and effective as a hedge of the identified risk exposure at the inception of the contract. Accordingly, changes
in fair value of the derivative contract must be highly correlated with changes in the fair value of the underlying hedged
item at inception of the hedge and over the life of the hedge contract.
We record all derivative instruments on our consolidated balance sheets at fair value. If the derivative is designated as a
cash flow hedge, the effective portions of the changes in fair value of the derivative are recorded in other comprehensive
income and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions.
Ineffective portions of the changes in the fair value of cash flow hedges are recognized currently in earnings. See Note 10
of these consolidated financial statements for further discussion of our derivative instruments.
Sales taxes
We present sales taxes and other taxes collected from customers and remitted to governmental authorities on a net basis
and, as such, exclude them from revenues.
Shipping and handling
We expense shipping and handling costs as incurred and include them in cost of license fees and other revenue. The
reimbursement of these costs by our customers is included in license fees and other revenue.
Cash and cash equivalents
We consider all highly liquid investments purchased with an original maturity of three months or less and cash items in
transit to be cash equivalents.
Restricted cash due to customers; Due to customers
Restricted cash due to customers consists of monies collected by us and payable to our customers, net of the associated
transaction fees earned. Monies associated with amounts due to customers are segregated in a separate bank account
and used exclusively for the payment of amounts due to customers. This usage restriction is either legally or internally
imposed and reflects our intention with regard to such deposits.
Concentration of credit risk
Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents,
restricted cash due to customers and accounts receivable. Our cash and cash equivalents and restricted cash due to customers
are placed with high credit-quality financial institutions. Our accounts receivable is derived from sales to customers who
primarily operate in the nonprofit sector. With respect to accounts receivable, we perform ongoing evaluations of our
customers and maintain an allowance for doubtful accounts based on historical experience and our expectations of future
losses. As of and for the years ended December 31, 2016, 2015 and 2014, there were no significant concentrations with
respect to our consolidated revenues or accounts receivable.
Property and equipment
We record property and equipment assets at cost and depreciate them over their estimated useful lives using the straight-
line method. Leasehold improvements are depreciated over the lesser of the term of the lease or the estimated useful life
68
2016 Form 10-K
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
of the asset. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed
from the accounts and any resulting gain or loss is credited or charged to earnings. Repair and maintenance costs are
expensed as incurred.
Construction-in-progress represents purchases of computer software and hardware associated with new internal system
implementation projects which had not been placed in service at the respective balance sheet dates. We transferred these
assets to the applicable property category on the date they are placed in service. There was no capitalized interest applicable
to construction-in-progress for the years ended December 31, 2016, 2015 and 2014.
Business combinations
We are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired and
liabilities assumed at the acquisition date based upon their estimated fair values. Goodwill as of the acquisition date
represents the excess of the purchase consideration of an acquired business over the fair value of the underlying net tangible
and intangible assets acquired and liabilities assumed. This allocation and valuation require management to make significant
estimates and assumptions, especially with respect to long-lived and intangible assets.
Critical estimates in valuing intangible assets include, but are not limited to, estimates about: future expected cash flows
from customer contracts, proprietary technology and non-compete agreements; the acquired company's brand awareness
and market position, assumptions about the period of time the brand will continue to be valuable; as well as expected
costs to develop any in-process research and development into commercially viable solutions and estimated cash flows
from the projects when completed, and discount rates. Our estimates of fair value are based upon assumptions we believe
to be reasonable, but which are inherently uncertain and unpredictable, and unanticipated events and changes in
circumstances may occur.
Goodwill
Goodwill represents the purchase price in excess of the net amount assigned to assets acquired and liabilities assumed by
us in a business combination. Goodwill is allocated to reporting units and tested annually for impairment. Our reporting
units are our three reportable segments as described in Note 16 of these consolidated financial statements. We will also
test goodwill for impairment between annual impairment tests if indicators of potential impairment exist. The quantitative
impairment test is a two-step process that first compares the fair values of the reporting units with their respective carrying
amounts. If the carrying amount of a reporting unit exceeds its fair value, a potential impairment is indicated, and we then
perform the second step to determine the amount of any impairment loss by comparing the implied fair value of the
affected reporting unit's goodwill with the carrying amount of its goodwill. If the carrying amount of the affected reporting
unit's goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized in an amount equal to that
excess. In each of 2016 and 2015, we performed the quantitative impairment test which indicated that the estimated fair
values of the reporting units significantly exceeded their respective carrying values; therefore, the second step of the
impairment test was not required to be performed.
In 2014, we performed the optional qualitative assessment of the goodwill assigned to each of our reporting units. When
a qualitative assessment is performed, we first assess qualitative factors to determine whether it is more likely than not
that the fair value of a reporting unit is less than its carrying amount. Significant judgment is required in the assessment
of qualitative factors including but not limited to an evaluation of macroeconomic conditions as they relate to our business,
industry and market trends, as well as the overall future financial performance of our reporting units and future opportunities
in the markets in which they operate. To the extent the qualitative factors indicate that there is more than 50% likelihood
that the fair value is less than the carrying amount, we compare the fair value of the reporting unit with its carrying amount.
If the carrying amount exceeds its fair value, impairment is indicated and we will recognize an impairment loss in an amount
equal to the difference. As a result of our 2014 qualitative assessment of goodwill assigned to each of our reporting units,
we concluded it was not more likely than not that the fair value of each reporting unit was less than its carrying value,
respectively.
There was no impairment of goodwill during 2016, 2015 or 2014.
2016 Form 10-K
69
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
Intangible assets
We amortize finite-lived intangible assets over their estimated useful lives as follows.
Customer relationships
Marketing assets
Acquired software and technology
Non-compete agreements
Database
Basis of amortization
Straight-line and accelerated(1)
Straight-line
Straight-line and accelerated(2)
Straight-line
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(1) Certain of the customer relationships are amortized on an accelerated basis.
(2) Certain of the acquired software and technology assets are amortized on an accelerated basis.
Indefinite-lived intangible assets consist of trade names. We evaluate the estimated useful lives and the potential for
impairment of finite and indefinite-lived intangible assets on an annual basis, or more frequently if events or circumstances
indicate revised estimates of useful lives may be appropriate or that the carrying amount may not be recoverable. If the
carrying amount is no longer recoverable based upon the undiscounted cash flows of the asset, the amount of impairment
is the difference between the carrying amount and the fair value of the asset. Substantially all of our intangible assets were
acquired in business combinations. There was no impairment of acquired intangible assets during 2016, 2015 or 2014.
Deferred financing costs
Deferred financing costs included in other assets represent the direct third-party costs of entering into the revolving (line-
of-credit) portion of our credit facility in February 2014 and portions of the unamortized deferred financing costs from
prior facilities. These costs are amortized ratably over the term of the credit facility as interest expense.
Stock-based compensation
We measure stock-based compensation cost at the grant date based on the fair value of the award and recognize it as
expense over the requisite service period, which is the vesting period. We determine the fair value of stock options and
stock appreciation rights using a Black-Scholes option pricing model, which requires us to use significant judgment to make
estimates regarding the life of the award, volatility of our stock price, the risk-free interest rate and the dividend yield of
our stock over the life of the award. We determine the fair value of awards that contain market conditions using a Monte
Carlo simulation model. Changes to these estimates would result in different fair values of awards.
As discussed below, we now recognize the effect of awards for which the requisite service period is not rendered when
the award is forfeited (that is, recognize the effect of forfeitures in compensation cost when they occur). Previously
recognized compensation cost for an award is reversed in the period that the award is forfeited. Income tax benefits
resulting from the vesting and exercise of stock-based compensation awards are recognized in the period the unit or award
is vested or option or right is exercised to the extent expense has been recognized.
Income taxes
We make estimates and judgments in accounting for income taxes. The calculation of the income tax provision requires
estimates due to transactions, credits and calculations where the ultimate tax determination is uncertain. Uncertainties
arise as a consequence of the actual source of taxable income between domestic and foreign locations, the outcome of
tax audits and the ultimate utilization of tax credits. To the extent actual results differ from estimated amounts recorded,
such differences will impact the income tax provision in the period in which the determination is made.
We make estimates in determining tax assets and liabilities, which arise from differences in the timing of recognition of
revenue and expense for tax and financial statement purposes. We record valuation allowances to reduce our deferred tax
assets to the amount expected to be realized. In assessing the adequacy of a recorded valuation allowance significant
judgment is required. We consider all positive and negative evidence and a variety of factors including the scheduled
70
2016 Form 10-K
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
reversal of deferred tax liabilities, historical and projected future taxable income, and prudent and feasible tax planning
strategies. If we determine there is less than a 50% likelihood that we will be able to use a deferred tax asset in the future
in excess of its net carrying value, then an adjustment to the deferred tax asset valuation allowance is made to increase
income tax expense, thereby reducing net income in the period such determination was made.
We measure and recognize uncertain tax positions. To recognize such positions, we must first determine if it is more likely
than not that the position will be sustained upon audit. We must then measure the benefit as the largest amount that is
more than 50% likely of being realized upon ultimate settlement. Significant judgment is required in the identification and
measurement of uncertain tax positions.
Foreign currency
Net assets recorded in a foreign currency are translated at the exchange rate on the balance sheet date. Revenue and
expense items are translated using an average of monthly exchange rates. The resulting translation adjustments are recorded
in accumulated other comprehensive income.
Gains and losses resulting from foreign currency transactions denominated in currency other than the functional currency
are recorded at the approximate rate of exchange at the transaction date in other expense, net. For the years ended
December 31, 2016 and 2014, we recorded insignificant net foreign currency losses. For the year ended December 31,
2015, we recorded an insignificant net foreign currency gain.
Research and development
Research and development costs are expensed as incurred. These costs include human resource costs, stock-based
compensation expense, third-party contractor expenses, software development tools and certain other expenses related
to researching and developing new solutions, and allocated depreciation, facilities and IT support costs.
Software development costs
We incur certain costs associated with the development of internal-use software, which are primarily related to activities
performed to develop our cloud-based solutions. Internal and external costs incurred in the preliminary project stage of
internal-use software development are expensed as incurred. Once the software being developed has reached the
application development stage, qualifying internal costs including payroll and payroll-related costs of employees who are
directly associated with and devote time to the software project as well as external direct costs of materials and services
are capitalized. Capitalization ceases at the point at which the developed software is substantially complete and ready for
its intended use, which is typically upon completion of all substantial testing. Qualifying costs capitalized during the
application development stage include those related to specific upgrades and enhancements when it is probable that those
costs incurred will result in additional functionality. Overhead costs, including general and administrative costs, as well as
maintenance, training and all other costs associated with post-implementation stage activities are expensed as incurred.
In addition, internal costs that cannot be reasonably separated between maintenance and relatively minor upgrades and
enhancements are expensed as incurred. Historically, we have also incurred and capitalized costs in connection with the
development of certain of our software solutions licensed to customers on a perpetual basis, which are accounted for as
costs of software to be sold, leased or otherwise marketed; however, costs capitalized related to those solutions were
insignificant as of December 31, 2016 and 2015.
Qualifying capitalized software development costs are amortized on a straight line basis over the software asset's estimated
useful life, which is generally three to seven years. We evaluate the useful lives of these assets on an annual basis and test
for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.
There were no impairment charges during the year ended December 31, 2016. During the year ended December 31, 2015,
we recorded insignificant impairment charges against previously capitalized software development costs. During the year
ended December 31, 2014, we recorded impairment charges of $1.6 million against certain previously capitalized software
development costs. The charges reduced the carrying value of the certain previously capitalized software development
costs to zero and are reflected in research and development expense. The impairment charges resulted from obtaining
software solutions through the acquisitions of Smart Tuition in 2015 and WhippleHill in 2014, respectively, and our
2016 Form 10-K
71
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
determination that it was no longer probable that certain internal-use software that was previously being developed would
be placed into service.
Sales returns and allowance for doubtful accounts
We maintain a reserve for returns and credits which is estimated based on several factors including historical experience,
known credits yet to be issued, the aging of customer accounts and the nature of service level commitments. A considerable
amount of judgment is required in assessing these factors. Provisions for sales returns and credits are charged against the
related revenue items.
Accounts receivable are recorded at original invoice amounts less an allowance for doubtful accounts, an amount we
estimate to be sufficient to provide adequate protection against losses resulting from extending credit to our customers.
In judging the adequacy of the allowance for doubtful accounts, we consider multiple factors including historical bad debt
experience, the general economic environment and the aging of our receivables. A considerable amount of judgment is
required in assessing these factors and if any receivables were to deteriorate, an additional provision for doubtful accounts
could be required. Accounts are written off after all means of collection are exhausted and recovery is considered remote.
Provisions for doubtful accounts are recorded in general and administrative expense.
Below is a summary of the changes in our allowance for sales returns.
Years ended December 31,
(in thousands)
Balance at
beginning of year
Provision/
adjustment
2016
2015
2014
$
4,431 $
4,185
5,158
3,060 $
5,834
4,407
Below is a summary of the changes in our allowance for doubtful accounts.
Years ended December 31,
(in thousands)
Balance at
beginning of year
Provision/
adjustment
2016
2015
2014
$
512 $
354
455
499 $
699
777
Write-off
(4,787) $
(5,588)
(5,380)
Write-off
(424) $
(541)
(878)
Balance at
end of year
2,704
4,431
4,185
Balance at
end of year
587
512
354
Sales commissions
We pay sales commissions at the time contracts with customers are signed or shortly thereafter, depending on the size
and duration of the sales contract. To the extent that these commissions relate to revenue not yet recognized, the amounts
are recorded as deferred sales commission costs. Subsequently, the commissions are recognized as sales, marketing and
customer success expense as the revenue is recognized.
Below is a summary of the changes in our deferred sales commission costs included in prepaid expenses and other current
assets.
Years ended December 31,
(in thousands)
Balance at
beginning of year
2016
2015
2014
$
30,141 $
22,630
20,088
Additions
37,553 $
55,934
24,615
Expense
(30,235) $
(48,423)
(22,073)
Balance at
end of year
37,459
30,141
22,630
72
2016 Form 10-K
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
Advertising costs
We expense advertising costs as incurred, which was $2.3 million, $2.3 million and $1.6 million for the years ended
December 31, 2016, 2015 and 2014, respectively.
Restructuring costs
Restructuring costs include charges for the costs of exit or disposal activities. The liability for costs associated with exit or
disposal activities is measured initially at fair value and only recognized when the liability is incurred.
Impairment of long-lived assets
We review long-lived assets for impairment when events change or circumstances indicate the carrying amount may not
be recoverable. Events or changes in circumstances that indicate the carrying amount may not be recoverable include, but
are not limited to, a significant decrease in the market value of the business or asset acquired, a significant adverse change
in the extent or manner in which the business or asset acquired is used or significant adverse change in the business climate.
If such events or changes in circumstances are present, the undiscounted cash flow method is used to determine whether
the asset is impaired. No impairment of long-lived assets occurred in 2016. No impairment of long-lived assets occurred
in 2015 or 2014 except for the impairment of previously capitalized software development costs discussed above.
Contingencies
We are subject to the possibility of various loss contingencies in the normal course of business. We record an accrual for
a contingency when it is both probable that a liability has been incurred and the amount of the loss can be reasonably
estimated. Often these issues are subject to substantial uncertainties and, therefore, the probability of loss and the estimation
of damages are difficult to ascertain. These assessments can involve a series of complex judgments about future events
and can rely heavily on estimates and assumptions that have been deemed reasonable by us. Although we believe we have
substantial defenses in these matters, we could incur judgments or enter into settlements of claims that could have a
material adverse effect on our consolidated financial position, results of operations or cash flows in any particular period.
Earnings per share
We compute basic earnings per share by dividing net income available to common stockholders by the weighted average
number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income
available to common stockholders by the weighted average number of common shares and dilutive potential common
shares outstanding during the period. Diluted earnings per share reflect the assumed exercise, settlement and vesting of
all dilutive securities using the “treasury stock method” except when the effect is anti-dilutive. Potentially dilutive securities
consist of shares issuable upon the exercise of stock options and stock appreciation rights and vesting of restricted stock
awards and units.
Recently adopted accounting pronouncements
In September 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.
2015-16, Simplifying the Accounting for Measurement-Period Adjustments ("ASU 2015-16"). ASU 2015-16 requires
for acquirers in business combinations to recognize adjustments to provisional amounts identified during measurement
periods in the reporting periods in which adjusted amounts are determined. The update requires that acquirers record, in
the same period’s financial statements, the effect on earnings of changes in depreciation, amortization or other income
effects, if any, resulting from changes in provisional amounts, calculated as if the accounting had been completed at
acquisition date. The update also requires separate income statement presentation or note disclosure of amounts recorded
in current period earnings by line item that would have been recorded in previous reporting periods if the provisional
amount adjustments had been recognized at the acquisition date (requirements to retrospectively account for those
adjustments have been eliminated). The guidance is effective for annual reporting periods beginning after December 15,
2015, including interim periods within that reporting period. Amendments in this update should be applied prospectively
to adjustments to provisional amounts that occur after its effective date, with earlier application permitted for financial
statements that have not been issued. We adopted ASU 2015-16 on January 1, 2016 and it did not have a material impact
2016 Form 10-K
73
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
on our consolidated financial statements. See Note 3 to these consolidated financial statements for details of any
measurement period adjustments.
In April 2015, the FASB issued ASU No. 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic
350-40) - Customer's Accounting for Fees Paid in a Cloud Computing Arrangement ("ASU 2015-05"). The
amendments in this update provide guidance to customers about whether a cloud computing arrangement includes a
software license. If a cloud computing arrangement includes a software license, the update specifies that the customer
should account for the software license element of the arrangement consistent with the acquisition of other software
licenses. The update further specifies that the customer should account for a cloud computing arrangement as a service
contract if the arrangement does not include a software license. An entity can elect to adopt the amendments either (1)
prospectively to all arrangements entered into or materially modified after the effective date or (2) retrospectively. We
adopted ASU 2015-05 on January 1, 2016 on a prospective basis and it did not have a material impact on our consolidated
financial statements.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest - Simplifying the Presentation of Debt
Issuance Costs ("ASU 2015-03"). ASU 2015-03 sets forth a requirement that debt issuance costs related to a recognized
debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability,
consistent with debt discounts. The recognition and measurement guidance for debt issuance costs is not affected by the
amendments in this update. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet
of each individual period presented is adjusted to reflect the period-specific effects of applying the new guidance. We
adopted ASU 2015-03 on January 1, 2016 and retrospectively adjusted "other assets" and "debt, net of current portion",
which had the effect of reducing each of those respective line items in our December 31, 2015 consolidated balance sheet
by approximately $0.5 million.
In March 2016, the FASB issued ASU 2016-09, Compensation — Stock Compensation (Topic 718), Improvements to
Employee Share-Based Payment Accounting ("ASU 2016-09"). The new guidance requires excess tax benefits and tax
deficiencies to be recorded in the income statement when the awards vest or are settled and provides an accounting policy
election to account for forfeitures as they occur. In addition, cash flows related to excess tax benefits will no longer be
separately classified as a financing activity apart from other income tax cash flows within operating activities. The standard
also allows entities to repurchase more of an employee’s shares for tax withholding purposes without triggering liability
accounting and clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as
a financing activity on the statements of cash flows. The new standard is effective for fiscal years beginning after December
15, 2016, with early adoption permitted.
We early adopted ASU 2016-09 during the three months ended September 30, 2016, which required us to reflect any
adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption. Upon
adoption, we elected to account for forfeitures as they occur using a modified retrospective transition method, which
resulted in a cumulative-effect adjustment of $0.9 million to reduce our January 1, 2016 opening retained earnings balance.
The following table summarizes the impact to our consolidated balance sheet, including the net amount charged to retained
earnings as of January 1, 2016:
(dollars in thousands)
Decrease in deferred tax liabilities related to the cumulative effect adjustment
from our election to recognize forfeitures as they occur rather than applying
an estimated forfeiture rate
Increase in additional paid-in capital resulting from our election to recognize
forfeitures as they occur
Net charge to retained earnings for cumulative effect adjustment from
adoption of ASU 2016-09
As of January 1, 2016
Balance sheet location
Amount
Deferred tax liability
$
(606)
Additional paid-in capital $
1,540
Retained earnings
$
(934)
We elected to retrospectively apply the changes in presentation to the statements of cash flows and no longer classify
excess tax benefits as a financing activity, which increased net cash provided by operating activities and reduced net cash
provided by financing activities by $5.5 million and $7.5 million for the years ended December 31, 2015 and 2014,
respectively.
74
2016 Form 10-K
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
The presentation requirements for cash flows related to employee taxes paid for withheld shares increased net cash provided
by operating activities and reduced net cash provided by financing activities for the years ended December 31, 2015 and
2014 by $9.4 million and $7.2 million, respectively, as such cash flows were historically presented within operating cash
flows.
Adoption of the new standard resulted in the recognition of excess tax benefits in our provision for income taxes rather
than paid-in capital of $7.7 million for the year ended December 31, 2016. The adoption of ASU 2016-09 impacted our
previously reported quarterly results for fiscal year 2016 as follows:
Consolidated balance sheets:
(dollars in thousands)
As of March 31, 2016
As of June 30, 2016
Additional paid-in capital
Retained earnings
As Reported
As Adjusted
As Reported
As Adjusted
$
$
285,376 $
285,606 $
294,810 $
294,019
134,192 $
134,500 $
136,338 $
137,893
Consolidated statements of comprehensive income:
(dollars in thousands, except per share amounts)
Income tax provision
Net income
Basic earnings per share
Diluted earnings per share
Three months ended
March 31, 2016
Three months ended
June 30, 2016
As Reported
As Adjusted
As Reported
As Adjusted
$
$
$
$
2,664 $
4,995 $
0.11 $
0.11 $
1,595 $
6,237 $
0.14 $
0.13 $
3,598 $
7,813 $
0.17 $
0.17 $
1,778
9,060
0.20
0.19
Diluted weighted average shares outstanding
46,757,458
47,064,164
46,927,626
47,263,844
Consolidated statements of cash flows:
(dollars in thousands)
Net cash provided by operating activities
Net cash provided by (used in) financing activities
Recently issued accounting pronouncements
Three months ended
March 31, 2016
Six months ended
June 30, 2016
As Reported
As Adjusted
As Reported
As Adjusted
$
$
104 $
6,757 $
37,987 $
48,753
9,546 $
2,893 $
(13,852) $
(24,618)
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the
Accounting for Goodwill Impairment ("ASU 2017-04"), which removes the requirement to perform a hypothetical
purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a
reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective
for annual and interim periods beginning after December 15, 2019, with early adoption permitted, and applied prospectively.
We do not expect ASU 2017-04 to have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a
Business ("ASU 2017-01"), which clarifies the definition of a business with the objective of adding guidance to assist
entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.
The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation.
ASU 2017-01 is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted,
and applied prospectively. We are currently evaluating the impact of adopting this standard.
2016 Form 10-K
75
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash ("ASU
2016-18"), which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted
cash equivalents in the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December
15, 2017, including interim periods within those periods. Early adoption is permitted, including adoption in an interim
period, but any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The
new standard must be adopted retrospectively. We are currently evaluating the impact of this standard on our consolidated
statements of cash flows.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 will require lessees
to record most leases on their balance sheets but recognize expenses in the income statement in a manner similar to current
guidance. The updated guidance also eliminates certain real estate-specific provisions and changes the guidance on sale-
leaseback transactions, initial direct costs and lease executory costs for all entities. For lessors, the standard modifies the
classification criteria and the accounting for sales-type and direct financing leases. All entities will classify leases to determine
how to recognize lease-related revenue and expense. Classification will continue to affect amounts that lessors record on
the balance sheet. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and interim periods
within those years. Early adoption is permitted. Upon adoption, entities will be required to use a modified retrospective
approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial
statements. The modified retrospective approach includes a number of optional practical expedients that entities may elect
to apply. We expect ASU 2016-02 will impact our consolidated financial statements and are currently evaluating the extent
of the impact that implementation of this standard will have on adoption.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"),
which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with
customers. The standard also provides guidance on the recognition of costs related to obtaining customer contracts. ASU
2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective and permits the use
of either the retrospective or cumulative effect transition method. ASU 2014-09 is effective for us beginning in the first
quarter of 2018 and we have not selected a transition method. We are currently evaluating the impact that the adoption
of ASU 2014-9 will have on our consolidated financial statements and related disclosures. As a result of our evaluation to
date, we expect that ASU 2014-09 will generally result in a longer deferral of commissions expense as compared with our
current amortization periods for such costs. In addition, we expect changes in the allocation of transactions prices for
contracts where we sell perpetual software licenses as ASU 2014-09 requires that the transaction price in a contract be
allocated based on relative standalone selling prices of the separate performance obligations. We also anticipate incremental
disclosures, including, but not limited to, quantitative reconciliations of opening and closing balances of contract assets
and liabilities, the value of remaining performance obligations at the end of each reporting period, and disaggregation of
revenue.
3. Business Combinations
2016 Acquisition
Attentive.ly
On July 11, 2016, we acquired all of the outstanding equity, including all voting equity interests of Good+Geek, Inc., a
Delaware corporation doing business as "Attentive.ly." Attentive.ly provides social media capabilities allowing organizations
to conduct social listening, identify key influencers and drive engagement through its cloud solution. The acquisition
accelerates our ability to deliver these capabilities to our customers. We acquired Attentive.ly for $3.9 million in cash, net
of closing adjustments. Of that purchase price, $1.3 million was allocated to the acquired finite-lived intangible technology
asset, which will be amortized over its estimated useful life of five years. The estimated amount of goodwill arising from
the acquisition that was assigned to the General Markets Business Unit ("GMBU") reporting segment and the Enterprise
Customer Business Unit ("ECBU") reporting segment was $1.4 million and $0.8 million, respectively. None of the goodwill
is deductible for tax purposes. The carrying amounts of all other assets acquired and liabilities assumed are insignificant
and approximate their estimated fair values. The assets and liabilities recorded for the acquisition of Attentive.ly were based
on preliminary valuations and the estimates and assumptions are subject to change as we obtain additional information
76
2016 Form 10-K
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
during the measurement period, which may be up to one year from the acquisition date. The assets and liabilities pending
finalization include the valuation of acquired intangible assets and as well as the evaluation of amounts recorded for
deferred income taxes. During the year ended December 31, 2016, we incurred insignificant acquisition-related expenses
associated with the acquisition of Attentive.ly, which were recorded in general and administrative expense. We included
the operating results of Attentive.ly, which are insignificant, in our consolidated financial statements from the date of
acquisition. We do not expect this business combination to have a material effect on our consolidated financial position,
results of operations or cash flows. We determined that the Attentive.ly acquisition was not a material business combination;
therefore, pro forma disclosures have not been presented.
2015 Acquisition
Smart Tuition
On October 2, 2015, we completed our acquisition of all of the outstanding equity, including all voting equity interests,
of Smart, LLC (“Smart Tuition”). Smart Tuition is a leading provider of payment software and services for private schools
and parents. The acquisition of Smart Tuition further expanded our offerings in the K-12 technology sector. We acquired
Smart Tuition for $187.3 million in cash, net of closing adjustments including an adjustment of approximately $0.5 million
during the three months ended March 31, 2016. We received the proceeds from these closing adjustments during the
three months ended June 30, 2016. On October 2, 2015, we drew down a $186.0 million revolving credit loan under our
2014 Credit Facility (as defined in Note 9 below) to finance the acquisition of Smart Tuition. As a result of the acquisition,
Smart Tuition has become a wholly-owned subsidiary of ours. We included the operating results of Smart Tuition in our
consolidated financial statements within our GMBU reporting segment from the date of acquisition. For the year ended
December 31, 2016, Smart Tuition's total revenue included in our consolidated financial statements was $39.8 million.
Because we have integrated the operations of Smart Tuition into ours, it is impracticable to determine the operating income
attributable solely to the acquired business.
The following table summarizes the allocation of the purchase price based on the estimated fair value of the assets
acquired and the liabilities assumed:
(dollars in thousands)
Net working capital, excluding deferred revenue
Property and equipment
Deferred revenue
Deferred tax asset
Intangible assets
Goodwill
Total purchase price(1)
Purchase Price
Allocation
202
$
2,457
(6,500)
2,637
97,800
90,376
$
186,972
(1) The purchase price differs from the net cash outlay of $187.3 million due to certain insignificant acquisition-related expenses included therein.
The estimated fair value of accounts receivable acquired approximates the contractual value of $2.8 million. The estimated
goodwill recognized is attributable primarily to the opportunities for expected synergies from combining operations and
the assembled workforce of Smart Tuition, all of which was assigned to our GMBU reporting segment. Approximately
$86.3 million of the goodwill arising in the acquisition is deductible for income tax purposes. We finalized the purchase
price allocation for Smart Tuition, including the valuation of assets acquired and liabilities assumed, during the third quarter
of 2016. All measurement period adjustments recorded were insignificant.
2016 Form 10-K
77
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
The Smart Tuition acquisition resulted in the identification of the following identifiable intangible assets:
Customer relationships
Marketing assets
Acquired technology
Non-compete agreements
Total intangible assets
Intangible
assets
acquired
(in thousands)
72,300
$
Weighted
average
amortization
period
(in years)
17
1,200
22,100
2,200
97,800
$
3
7
5
14
The estimated fair values of the finite-lived intangible assets were based on variations of the income approach, which
estimates fair value based on the present value of cash flows that the assets are expected to generate which included the
relief-from-royalty method, incremental cash flow method including the with and without method and excess earnings
method, depending on the intangible asset being valued. The method of amortization of identifiable finite-lived intangible
assets is based on the expected pattern in which the estimated economic benefits of the respective assets are consumed
or otherwise used up. Customer relationships and acquired technology are being amortized on an accelerated basis while
marketing assets and non-compete agreements are being amortized on a straight-line basis.
The following unaudited pro forma condensed combined consolidated results of operations assume that the acquisition
of Smart Tuition occurred on January 1, 2014. This unaudited pro forma financial information does not reflect any
adjustments for anticipated synergies resulting from the acquisition and should not be relied upon as being indicative of
the historical results that would have been attained had the transaction been consummated as of January 1, 2014, or of
the results that may occur in the future. The unaudited pro forma information reflects adjustments for amortization of
intangibles related to the fair value adjustments of the assets acquired, write-down of acquired deferred revenue to fair
value, additional interest expense related to the financing of the transaction and the related tax effects of the adjustments.
(dollars in thousands, except per share amounts)
Revenue
Net income
Basic earnings per share
Diluted earnings per share
2014 Acquisitions
MicroEdge
Years ended December 31,
2015
666,131 $
26,334 $
0.58 $
0.57 $
2014
587,459
17,952
0.40
0.39
$
$
$
$
On October 1, 2014, we completed our acquisition of all of the outstanding equity, including all voting equity interests of
MicroEdge Holdings, LLC (“MicroEdge”). MicroEdge is a provider of software solutions that enable the worldwide giving
community to organize, simplify and measure their acts of charitable giving. The acquisition of MicroEdge expanded our
offerings in the philanthropic giving sector with its comprehensive solutions for grant-making, corporate social responsibility
and foundation management. We acquired MicroEdge for an aggregate purchase price of $159.8 million in cash. As a
result of the acquisition, MicroEdge has become a wholly-owned subsidiary of ours. The operating results of MicroEdge
have been included in our consolidated financial statements from the date of acquisition within the ECBU. Because we
have integrated the operations of MicroEdge into ours, it is impracticable to determine the revenue and operating income
attributable solely to the acquired business. We financed the acquisition of MicroEdge through cash on hand and borrowings
of $140.0 million under our existing credit facility.
78
2016 Form 10-K
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
The following unaudited pro forma condensed combined consolidated results of operations assume that the acquisition
of MicroEdge occurred on January 1, 2013. This unaudited pro forma financial information does not reflect any adjustments
for anticipated synergies resulting from the acquisition and should not be relied upon as being indicative of the historical
results that would have been attained had the transaction been consummated as of January 1, 2013, or of the results that
may occur in the future. The unaudited pro forma information reflects adjustments for amortization of intangibles related
to the fair value adjustments of the assets acquired, write-down of acquired deferred revenue to fair value, additional
interest expense related to the financing of the transaction and the related tax effects of the adjustments.
(in thousands, except per share amounts)
Revenue
Net income
Basic earnings per share
Diluted earnings per share
WhippleHill
Year ended December 31,
$
$
$
$
2014
592,930
26,944
0.60
0.59
On June 16, 2014, we acquired all of the outstanding stock of WhippleHill Communications, Inc. (“WhippleHill”), a privately
held company based in New Hampshire, for $35.0 million in cash. WhippleHill is a provider of cloud-based solutions
designed exclusively to serve K-12 private schools. The acquisition of WhippleHill expanded our offerings in the K-12
technology sector. The operating results of WhippleHill have been included in our consolidated financial statements from
the date of acquisition. Because we have integrated the operations of WhippleHill into ours, it is impracticable to determine
the revenue and operating income attributable solely to the acquired business.
We determined that the WhippleHill acquisition was a non-material business combination. As such, pro forma disclosures
are not required and are not presented.
4. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
(dollars in thousands, except per share amounts)
Numerator:
Net income
Denominator:
Weighted average common shares
Add effect of dilutive securities:
Stock-based awards
Weighted average common shares assuming dilution
Earnings per share:
Basic
Diluted
Years ended December 31,
2016
2015
2014
$
41,515 $
25,649 $
28,290
46,132,389 45,623,854 45,215,138
1,184,149
874,850
584,736
47,316,538 46,498,704 45,799,874
$
$
0.90 $
0.88 $
0.56 $
0.55 $
0.63
0.62
Anti-dilutive shares excluded from calculations of diluted earnings per share
7,339
18,554
23,159
2016 Form 10-K
79
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
5. Fair Value Measurements
Recurring fair value measurements
Financial assets and liabilities measured at fair value on a recurring basis consisted of the following, as of:
(dollars in thousands)
Fair value as of December 31, 2016
Financial assets:
Derivative instruments(1)
Total financial assets
Fair value as of December 31, 2016
Financial liabilities:
Derivative instruments(1)
Total financial liabilities
Fair value as of December 31, 2015
Financial assets:
Derivative instruments(1)
Total financial assets
Fair value as of December 31, 2015
Financial liabilities:
Derivative instruments(1)
Total financial liabilities
Fair value measurement using
Level 1
Level 2
Level 3
Total
$
$
$
$
$
$
$
$
— $
— $
206 $
206 $
— $
— $
— $
— $
163 $
163 $
— $
— $
— $
— $
406 $
406 $
— $
— $
— $
— $
438 $
438 $
— $
— $
206
206
163
163
406
406
438
438
(1)
The fair value of our interest rate swaps was based on model-driven valuations using LIBOR rates, which are observable at commonly quoted intervals.
Accordingly, our interest rate swaps are classified within Level 2 of the fair value hierarchy.
We believe the carrying amounts of our cash and cash equivalents, donor restricted cash, accounts receivable, trade accounts
payable, accrued expenses and other current liabilities and donations payable approximate their fair values at December 31,
2016 and December 31, 2015, due to the immediate or short-term maturity of these instruments.
We believe the carrying amount of our debt approximates its fair value at December 31, 2016 and December 31, 2015,
as the debt bears interest rates that approximate market value. As LIBOR rates are observable at commonly quoted intervals,
our debt is classified within Level 2 of the fair value hierarchy.
We did not transfer any assets or liabilities among the levels within the fair value hierarchy during the years ended
December 31, 2016, 2015 and 2014. Additionally, we did not hold any Level 3 assets or liabilities during the years ended
December 31, 2016, 2015 and 2014.
Non-recurring fair value measurements
Assets and liabilities that are measured at fair value on a non-recurring basis include intangible assets and goodwill which
are recognized at fair value during the period in which an acquisition is completed, from updated estimates and assumptions
during the measurement period, or when they are considered to be impaired. These non-recurring fair value measurements,
primarily for intangible assets acquired, were based on Level 3 unobservable inputs. In the event of an impairment, we
determine the fair value of the goodwill and intangible assets using a discounted cash flow approach, which contains
80
2016 Form 10-K
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
significant unobservable inputs and therefore is considered a Level 3 fair value measurement. The unobservable inputs in
the analysis generally include future cash flow projections and a discount rate.
There were no non-recurring fair value adjustments to intangible assets and goodwill during 2016, 2015 and 2014 except
for certain business combination accounting adjustments to the initial fair value estimates of the assets acquired and
liabilities assumed at the acquisition date (as disclosed in Note 3 to these consolidated financial statements) from updated
estimates and assumptions during the measurement period. The measurement period may be up to one year from the
acquisition date. We record any measurement period adjustments to the fair value of assets acquired and liabilities assumed,
with the corresponding offset to goodwill.
6. Property and Equipment and Software Development Costs
Property and equipment
Property and equipment consisted of the following, as of:
(dollars in thousands)
Equipment
Computer hardware
Computer software
Construction in progress
Furniture and fixtures
Leasehold improvements
Total property and equipment
Less: accumulated depreciation
Property and equipment, net
Estimated
useful life
(years)
3 - 5 $
3 - 5
3 - 5
-
5 - 7
Lesser of lease term or 10 years
December 31,
2016
2,403 $
81,260
31,604
2,972
7,989
19,942
146,170
2015
3,868
77,668
26,457
2,337
7,146
17,171
134,647
(95,901)
(81,996)
$
50,269 $
52,651
Depreciation expense was $19.8 million, $18.5 million, and $17.3 million for the years ended December 31, 2016, 2015
and 2014, respectively.
Property and equipment, net of depreciation, under capital leases at December 31, 2016 and 2015 was insignificant.
Software development costs
Software development costs consisted of the following, as of:
(dollars in thousands)
Software development costs
Less: accumulated amortization
Software development costs, net
Estimated
useful life
(years)
3 - 7 $
December 31,
2016
55,126 $
(17,544)
2015
28,767
(9,216)
$
37,582 $
19,551
Amortization expense related to software development costs was $8.3 million, $5.4 million, and $2.0 million for the years
ended December 31, 2016, 2015 and 2014, respectively, and is included in both cost of subscriptions, primarily, and to a
lesser extent, cost of license fees.
2016 Form 10-K
81
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
7. Goodwill and Other Intangible Assets
The change in goodwill for each reportable segment (as defined in Note 16) during 2016 consisted of the following:
(dollars in thousands)
Balance at December 31, 2015
Additions related to current year business combination
Adjustments related to prior year business combination
Effect of foreign currency translation
Balance at December 31, 2016
ECBU
GMBU
IBU
Total
$ 240,494 $ 190,976 $
4,979 $ 436,449
840
—
—
1,444
(182)
—
58
—
(369)
2,342
(182)
(369)
$ 241,334 $ 192,238 $
4,668 $ 438,240
We have recorded intangible assets acquired in various business combinations based on their fair values at the date of
acquisition. The table below sets forth the balances of each class of intangible asset and related amortization as of:
(dollars in thousands)
Finite-lived gross carrying amount
Customer relationships
Marketing assets
Acquired software and technology
Non-compete agreements
Database
Total finite-lived gross carrying amount
Accumulated amortization
Customer relationships
Marketing assets
Acquired software and technology
Non-compete agreements
Database
Total accumulated amortization
Indefinite-lived gross carrying amount
Marketing assets
Intangible assets, net
December 31,
2016
2015
$
248,287 $
247,462
16,187
147,269
3,493
4,275
16,187
148,615
3,402
4,378
419,511
420,044
(77,983)
(9,826)
(74,975)
(1,553)
(4,093)
(57,748)
(7,753)
(57,548)
(864)
(4,061)
(168,430)
(127,974)
2,595
2,602
$
253,676 $
294,672
Changes to the gross carrying amounts of intangible asset classes during 2016 were related to our business acquisitions
as described in Note 3 of these financial statements and the effect of foreign currency translation.
Amortization expense
Amortization expense related to finite-lived intangible assets acquired in business combinations is allocated to cost of
revenue on the consolidated statements of comprehensive income based on the revenue stream to which the asset
contributes, except for marketing assets and non-compete agreements, for which the associated amortization expense is
included in operating expenses.
82
2016 Form 10-K
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
The following table summarizes amortization expense of our finite-lived intangible assets:
(dollars in thousands)
Included in cost of revenue:
Cost of subscriptions
Cost of maintenance
Cost of services
Cost of license fees and other
Total included in cost of revenue
Included in operating expenses
Years ended December 31,
2016
2015
2014
$
31,270 $
23,075 $
20,239
5,327
2,621
340
39,558
2,840
4,162
2,382
368
29,987
2,231
772
2,910
424
24,345
1,803
Total amortization of intangibles from business combinations
$
42,398 $
32,218 $
26,148
The following table outlines the estimated future amortization expense for each of the next five years for our finite-lived
intangible assets as of December 31, 2016:
Years ending December 31,
(dollars in thousands)
2017
2018
2019
2020
2021
Total
8. Consolidated Financial Statement Details
Prepaid expenses and other assets
(dollars in thousands)
Deferred sales commissions
Prepaid software maintenance
Taxes, prepaid and receivable
Deferred professional services costs
Deferred tax asset
Prepaid royalties
Other assets
Total prepaid expenses and other assets
Less: Long-term portion
Prepaid expenses and other current assets
Amortization
expense
41,711
$
40,001
36,541
27,975
21,062
$
167,290
$
December 31,
2016
37,459 $
18,130
December 31,
2015
30,141
15,308
4,111
1,722
2,379
1,373
5,664
70,838
22,524
$
48,314 $
9,121
3,603
2,869
1,767
6,758
69,567
20,901
48,666
2016 Form 10-K
83
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
Accrued expenses and other liabilities
(dollars in thousands)
Accrued bonuses
Accrued commissions and salaries
Taxes payable
Deferred rent liabilities
Lease incentive obligations
Unrecognized tax benefit
Customer credit balances
Accrued vacation costs
Accrued health care costs
Other liabilities
Total accrued expenses and other liabilities
Less: Long-term portion
Accrued expenses and other current liabilities
Deferred revenue
(dollars in thousands)
Subscriptions
Maintenance
Services
License fees and other
Total deferred revenue
Less: Long-term portion
December 31,
2016
19,217 $
December 31,
2015
24,591
$
9,352
3,452
4,110
5,604
3,295
5,148
2,214
1,495
8,842
62,729
8,533
$
54,196 $
8,391
3,923
4,070
4,734
3,147
3,515
2,446
2,356
7,911
65,084
7,623
57,461
December 31,
2016
144,606 $
December 31,
2015
122,524
$
76,803
29,039
492
250,940
6,440
85,901
28,517
393
237,335
7,119
Deferred revenue, current portion
$
244,500 $
230,216
Other expense, net
(dollars in thousands)
Interest income
Loss on sale of business
Loss on debt extinguishment and termination of derivative instruments(1)
Other (expense) income, net
Other expense, net
Years ended December 31,
2016
581 $
—
—
(872)
2015
155 $
(1,976)
—
134
2014
59
—
(996)
(182)
(291) $
(1,687) $
(1,119)
$
$
(1)
See Notes 9 and 10 to these consolidated financial statements for details of the loss on debt extinguishment and termination of derivative
instruments.
84
2016 Form 10-K
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
9. Debt
The following table summarizes our debt balances and the related weighted average effective interest rates, which includes
the effect of interest rate swap agreements.
(dollars in thousands)
Credit facility:
Revolving credit loans
Term loans
Total debt
Less: Unamortized debt discount
Less: Debt, current portion
Debt, net of current portion
Debt balance at
Weighted average
effective interest rate at
December 31,
2016
December 31,
2015
December 31,
2016
December 31,
2015
$
$
180,900 $
162,969
343,869
1,476
4,375
338,018 $
242,900
167,344
410,244
2,157
4,375
403,712
2.36%
2.62%
2.48%
2.50%
2.48%
2.15%
2.51%
2.30%
2.11%
2.30%
We were previously party to a $325.0 million five-year credit facility entered into during February 2012. The credit facility
included: a dollar and a designated currency revolving credit facility with sublimits for letters of credit and swingline loans
(the “2012 Revolving Facility”) and a delayed draw term loan (the “2012 Term Loan”) together, (the “2012 Credit Facility”).
2014 refinancing
In February 2014, we entered into a five-year $325.0 million credit facility (the “2014 Credit Facility”) and drew $175.0
million on a term loan upon closing, which was used to repay all amounts outstanding under the 2012 Credit Facility.
The 2014 Credit Facility includes the following facilities: (i) a dollar and a designated currency revolving credit facility with
sublimits for letters of credit and swingline loans (the “2014 Revolving Facility”) and (ii) a term loan facility (the “2014
Term Loan”).
Certain lenders of the 2012 Term Loan participated in the 2014 Term Loan and the change in the present value of our
future cash flows to these lenders under the 2012 Term Loan and under the 2014 Term Loan was less than 10%. Accordingly,
we accounted for the refinancing event for these lenders as a debt modification. Certain lenders of the 2012 Term Loan
did not participate in the 2014 Term Loan. Accordingly, we accounted for the refinancing event for these lenders as a debt
extinguishment. Certain lenders of the 2012 Revolving Facility participated in the 2014 Revolving Facility and provided
increased borrowing capacities. Accordingly, we accounted for the refinancing event for these lenders as a debt modification.
Certain lenders of the 2012 Revolving Facility did not participate in the 2014 Revolving Facility. Accordingly, we accounted
for the refinancing event for these lenders as a debt extinguishment.
We recorded a $0.4 million loss on debt extinguishment related to the write-off of deferred financing costs for the portions
of the 2012 Credit Facility considered to be extinguished. This loss was recognized in the consolidated statements of
comprehensive income within loss on debt extinguishment and termination of derivative instruments.
In connection with our entry into the 2014 Credit Facility, we paid $2.5 million in financing costs, of which $1.1 million
were capitalized and, together with a portion of the unamortized deferred financing costs from the 2012 Credit Facility
and prior facilities, are being amortized into interest expense ratably over the term of the new facility. As of December 31,
2016 and December 31, 2015, deferred financing costs totaling $0.6 million and $0.9 million, respectively, were included
in other assets on our consolidated balance sheets.
Summary of the 2014 Credit Facility
The 2014 Credit Facility is secured by the stock and limited liability company interests of certain of our subsidiaries and is
guaranteed by our material domestic subsidiaries.
2016 Form 10-K
85
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
Amounts borrowed under the dollar tranche revolving credit loans and term loan under the 2014 Credit Facility bear interest
at a rate per annum equal to, at our option, (a) a base rate equal to the highest of (i) the prime rate, (ii) federal funds rate
plus 0.50% and (iii) one month LIBOR plus 1.00% (the “Base Rate”), in addition to a margin of 0.00% to 0.50%, or
(b) LIBOR rate plus a margin of 1.00% to 1.50%.
We also pay a quarterly commitment fee on the unused portion of the 2014 Revolving Facility from 0.15% to 0.225% per
annum, depending on our net leverage ratio. At December 31, 2016, the commitment fee was 0.225%.
The term loan under the 2014 Credit Facility requires periodic principal payments. The balance of the term loan and any
amounts drawn on the revolving credit loans are due upon maturity of the 2014 Credit Facility in February 2019. We
evaluate the classification of our debt as current or non-current based on the required annual maturities of the 2014 Credit
Facility.
The 2014 Credit Facility includes financial covenants related to the net leverage ratio and interest coverage ratio, as well
as restrictions on our ability to declare and pay dividends and our ability to repurchase shares of our common stock. At
December 31, 2016, we were in compliance with our debt covenants under the 2014 Credit Facility.
Financing for MicroEdge acquisition
The 2014 Credit Facility includes an option to request increases in the revolving commitments and/or request additional
term loans in an aggregate principal amount of up to $200.0 million. On October 1, 2014, we exercised this option, and
certain lenders agreed, to increase the revolving credit commitments by $100.0 million (the "October 2014 Additional
Revolving Credit Commitments") such that for the period commencing October 1, 2014, the aggregate revolving credit
commitments available were $250.0 million. The October 2014 Additional Revolving Credit Commitments have the same
terms as the existing revolving credit commitments.
On October 1, 2014, we drew down $140.0 million in revolving credit commitments under the 2014 Credit Facility to
finance the acquisition of MicroEdge.
Financing for Smart Tuition acquisition
On July 17, 2015, we again exercised this option and certain lenders agreed to increase the revolving credit commitments
by an additional $100.0 million (the "July 2015 Additional Revolving Credit Commitments") such that for the period
commencing July 17, 2015, the aggregate revolving credit commitments available were $350.0 million. The July 2015
Additional Revolving Credit Commitments have the same terms as the existing revolving credit commitments.
On October 2, 2015, we drew down a $186.0 million revolving credit loan under the 2014 Credit Facility to finance the
acquisition of Smart Tuition.
As of December 31, 2016, the required annual maturities related to the 2014 Credit Facility were as follows:
Years ending December 31,
(dollars in thousands)
2017
2018
2019
2020
2021
Thereafter
Total required maturities
86
2016 Form 10-K
$
Annual
maturities
4,375
4,375
335,119
—
—
—
$ 343,869
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
10. Derivative Instruments
We use derivative instruments to manage our variable interest rate risk. In February 2014, in connection with the refinancing
of our debt, we terminated the two interest rate swap agreements associated with the 2012 Credit Facility. As part of the
settlement of our swap liabilities, we recorded a loss of $0.6 million, which was recognized in the consolidated statements
of comprehensive income within loss on debt extinguishment and termination of derivative instruments.
In March 2014, we entered into a new interest rate swap agreement (the "March 2014 Swap Agreement"), which effectively
converts portions of our variable rate debt under the 2014 Credit Facility to a fixed rate for the term of the March 2014
Swap Agreement. The initial notional value of the March 2014 Swap Agreement was $125.0 million with an effective date
beginning in March 2014. In March 2017, the notional value of the March 2014 Swap Agreement will decrease to $75.0
million for the remaining term through February 2018. We designated the March 2014 Swap Agreement as a cash flow
hedge at the inception of the contract.
In October 2015, we entered into an additional interest rate swap agreement (the "October 2015 Swap Agreement"),
which effectively converts portions of our variable rate debt under the 2014 Credit Facility to a fixed rate for the term of
the October 2015 Swap Agreement. The notional value of the October 2015 Swap Agreement was $75.0 million with an
effective date beginning in October 2015 and maturing in February 2018. We designated the October 2015 Swap
Agreement as a cash flow hedge at the inception of the contract.
The fair values of our derivative instruments were as follows as of:
(dollars in thousands)
Derivative instruments designated as hedging instruments:
Balance sheet location
December 31,
2016
December 31,
2015
Interest rate swap, long-term portion
Other assets $
Total derivative instruments designated as hedging
instruments
$
206 $
206 $
406
406
December 31,
2016
December 31,
2015
Derivative instruments designated as hedging instruments:
Interest rate swaps, current portion
Interest rate swaps, long-term portion
Total derivative instruments designated as hedging
instruments
Accrued expenses and
other current liabilities $
Other liabilities
$
— $
163
163 $
2
436
438
2016 Form 10-K
87
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
The effects of derivative instruments in cash flow hedging relationships were as follows:
Gain (loss) recognized
in accumulated other
comprehensive
loss as of
(dollars in thousands)
Interest rate swaps
Interest rate swaps
Interest rate swaps
Interest rate swaps
Total
$
$
$
$
December 31,
2016
42
December 31,
2015
(31)
December 31,
2014
(268)
—
(268)
Location
of gain (loss)
reclassified from
accumulated other
comprehensive
loss into income
Interest expense $
Interest expense $
Interest expense $
Loss on debt
extinguishment
and termination of
derivative instruments
$
Gain (loss) reclassified from accumulated
other comprehensive loss into income
Year ended
December 31, 2016
(1,106)
Year ended
December 31, 2015
(1,569)
Year ended
December 31, 2014
(1,215)
(587)
(1,802)
Our policy requires that derivatives used for hedging purposes be designated and effective as a hedge of the identified risk
exposure at the inception of the contract. Accumulated other comprehensive income (loss) includes unrealized gains or
losses from the change in fair value measurement of our derivative instruments each reporting period and the related
income tax expense or benefit. Changes in the fair value measurements of the derivative instruments and the related
income tax expense or benefit are reflected as adjustments to accumulated other comprehensive income (loss) until the
actual hedged expense is incurred or until the hedge is terminated at which point the unrealized gain (loss) is reclassified
from accumulated other comprehensive income (loss) to current earnings. The estimated net amount of losses that are
recorded in accumulated other comprehensive loss as of December 31, 2016 that is expected to be reclassified into earnings
within the next twelve months is insignificant. There were no ineffective portions of our interest rate swap derivatives
during the years ended December 31, 2016, 2015 and 2014. See Note 14 to these consolidated financial statements for
a summary of the changes in accumulated other comprehensive income (loss) by component.
11. Commitments and Contingencies
Historical Leases
We lease our headquarters facility under a 15-year lease agreement which was entered into in October 2008, and has two
five-year renewal options. The current annual base rent of the lease is $5.1 million, payable in equal monthly installments.
The base rent escalates annually at a rate equal to the change in the consumer price index, as defined in the agreement,
but not to exceed 5.5% in any year.
We have a lease for office space in Austin, Texas which terminates on September 30, 2023, and has two five-year renewal
options. The current annual base rent of the lease is $2.8 million. The base rent escalates annually between 2% and 4%
based on the terms of the agreement. The rent expense is recorded on a straight-line basis over the length of the lease
term. At December 31, 2016, we had a standby letter of credit of $2.0 million for a security deposit for this lease.
We have provisions in our leases that entitle us to aggregate remaining leasehold improvement allowances of $5.1 million
as of December 31, 2016. These amounts are being recorded as a reduction to rent expense ratably over the terms of the
leases. The leasehold improvement allowances have been included in the table of operating lease commitments below as
a reduction in our lease commitments ratably over the then remaining terms of the leases. The timing of the reimbursements
for the actual leasehold improvements may vary from the amounts reflected in the table below.
88
2016 Form 10-K
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
We have also received quarterly South Carolina state incentive payments as a result of locating our headquarters facility
in Berkeley County, South Carolina. These amounts are recorded as a reduction of rent expense upon receipt and were
$2.9 million, $2.3 million and $2.2 million for the years ended December 31, 2016, 2015 and 2014, respectively. These
quarterly state incentive payments related to our current headquarters facility ended in 2016.
Total rent expense was $11.7 million, $10.3 million and $9.4 million for the years ended December 31, 2016, 2015 and
2014, respectively.
Lease for New Headquarters Facility
In May 2016, we entered into a lease agreement for a new headquarters facility to be built in Charleston, South Carolina
(the "New Headquarters Facility"). The landlord is responsible for the design, development and construction of the New
Headquarters Facility. Construction of the New Headquarters Facility will proceed in two phases. Phase One will include a
building with approximately 172,000 rentable square feet, which is expected to be completed in the first quarter of 2018.
The lease agreement also grants us a Phase Two option to request that the landlord construct and lease to us a second
office building and related improvements. Total rent payments and leasehold improvement allowances for Phase One are
estimated to be approximately $102.1 million and $12.9 million, respectively, over the life of the lease agreement, plus
additional amounts for Phase Two, if applicable. The lease agreement is for a period of twenty years beginning on the date
of substantial completion of construction by the landlord, which is estimated to be in the first quarter of 2018, and ending
in the first quarter of 2038. The lease agreement provides for four renewal periods of five years each at a base rent equal
to the then prevailing market rate for comparable buildings. We expect to receive quarterly South Carolina state incentive
payments as a result of locating our new headquarters facility in Berkeley County, South Carolina, which will be recorded
as a reduction of rent expense upon receipt.
As of December 31, 2016, the future minimum lease commitments related to lease agreements, net of related lease
incentives, were as follows:
Years ending December 31,
(dollars in thousands)
2017
2018
2019
2020
2021
Thereafter
Total minimum lease payments
Operating
leases(1)
16,085
$
17,103
16,004
15,461
14,724
95,385
$
174,762
(1) Our future minimum lease commitments related to operating leases do not include payments related to Phase Two of our New Headquarters Facility,
as that option had not been exercised as of December 31, 2016.
Other commitments
As discussed in Note 9 to these consolidated financial statements, the term loans under the 2014 Credit Facility require
periodic principal payments. The balance of the term loans and any amounts drawn on the revolving credit loans are due
upon maturity of the 2014 Credit Facility in February 2019.
We utilize third-party technology in conjunction with our solutions, services and operations with contractual arrangements
varying in length from one to five years. In certain cases, these arrangements require a minimum annual purchase
commitment. As of December 31, 2016, the remaining aggregate minimum purchase commitment under these
arrangements was approximately $38.2 million through 2021.
Solution and service indemnifications
In the ordinary course of business, we provide certain indemnifications of varying scope to customers against claims of
intellectual property infringement made by third parties arising from the use of our solutions or services. If we determine
2016 Form 10-K
89
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
that it is probable that a loss has been incurred related to solution or service indemnifications, any such loss that could be
reasonably estimated would be recognized. We have not identified any losses and, accordingly, we have not recorded a
liability related to these indemnifications.
Guarantees and indemnification obligations
We enter into agreements in the ordinary course of business with, among others, customers, creditors, vendors and service
providers. Pursuant to certain of these agreements we have agreed to indemnify the other party for certain matters, such
as property damage, personal injury, acts or omissions of ours, or our employees, agents or representatives, or third-party
claims alleging that the activities of its contractual partner pursuant to the contract infringe a patent, trademark or copyright
of such third party.
Legal contingencies
We are subject to legal proceedings and claims that arise in the ordinary course of business. We record an accrual for a
contingency when it is both probable that a liability has been incurred and the amount of the loss can be reasonably
estimated. As of December 31, 2016, in our opinion, there was not at least a reasonable possibility that these actions
arising in the ordinary course of business will have a material adverse effect upon our consolidated financial position, results
of operations or cash flows and, therefore, no material loss contingencies were recorded.
12. Income Taxes
We file income tax returns in the U.S. for federal and various state jurisdictions as well as in foreign jurisdictions including
Canada, the United Kingdom, Australia and Ireland. We are generally subject to U.S. federal income tax examination for
calendar tax years 2013 through 2016 as well as state and foreign income tax examinations for various years depending
on statutes of limitations of those jurisdictions.
The following summarizes the components of income tax expense:
(dollars in thousands)
Current taxes:
U.S. Federal
U.S. State and local
International
Total current taxes
Deferred taxes:
U.S. Federal
U.S. State and local
International
Total deferred taxes
Years ended December 31,
2016
2015
2014
$
4,655 $
5,890 $
1,670
53
6,378
2,544
304
185
3,033
2,215
33
8,138
2,702
585
(122)
3,165
5,757
2,158
(21)
7,894
4,725
(1,329)
(346)
3,050
10,944
Total income tax provision
$
9,411 $
11,303 $
90
2016 Form 10-K
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
The following summarizes the components of income before provision for income taxes:
(dollars in thousands)
U.S.
International
Income before provision for income taxes
Years ended December 31,
2016
49,320 $
1,606
2015
37,523 $
(571)
2014
39,638
(404)
50,926 $
36,952 $
39,234
$
$
A reconciliation between the effect of applying the federal statutory rate and the effective income tax rate used to calculate
our income tax provision is as follows:
Federal statutory rate
Effect of:
State income taxes, net of federal benefit
Change in state income tax rate applied to deferred tax balances
Fixed assets
Unrecognized tax benefit
State credits, net of federal benefit
Change in valuation reserve (primarily state credit reserves)
Federal credits generated
Foreign tax rate
Acquisition costs
Section 162(m) limitation
Loss from sale of foreign subsidiary
Domestic production activities deduction
Stock-based compensation
Other
Income tax provision effective rate
Years ended December 31,
2016
35.0%
2015
35.0%
2014
35.0%
4.1
0.2
—
0.2
(0.1)
(1.6)
(6.2)
(0.4)
0.1
1.7
—
(1.2)
(13.6)
0.3
5.7
2.1
(0.1)
(1.1)
6.0
(8.6)
(6.1)
(0.7)
0.1
0.1
1.9
(1.8)
—
(1.9)
3.2
(1.1)
(0.3)
(2.9)
(1.0)
1.3
(4.7)
(0.1)
0.6
0.4
—
(1.2)
—
(1.3)
18.5%
30.6%
27.9%
As discussed in Note 2 to these consolidated financial statements, we early adopted ASU 2016-09 relating to stock-based
compensation in 2016. Under ASU 2016-09, tax benefits in excess of compensation costs (windfalls) generated upon the
exercise or settlement of stock awards are no longer recognized as additional paid-in capital but are instead recognized
as a reduction to income tax expense. This change in accounting for income taxes is effective on a prospective basis as of
the beginning of the 2016 fiscal year. Upon adoption of ASU 2016-09 in 2016, we recorded a benefit to tax expense of
$7.7 million. We recorded excess tax benefits from the exercise and vesting of stock-based compensation of $5.5 million
and $7.5 million in additional paid-in capital during the years ended December 31, 2015 and 2014, respectively.
A portion of our South Carolina credit carryforward expired in 2015 and 2016 and this is reflected in the rate increase for
state credits, net of federal benefit. This increase was offset by the release of the related state credit valuation reserve and
additional state research credits generated in 2015 and 2016, which are reflected in the rate decrease for change in
valuation reserve.
2016 Form 10-K
91
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
The significant components of our deferred tax assets and liabilities were as follows:
(dollars in thousands)
Deferred tax assets relating to:
December 31,
2016
2015
Federal and state and foreign net operating loss carryforwards
$
12,906 $
Federal, state and foreign tax credits
Intangible assets
Stock-based compensation
Accrued bonuses
Deferred revenue
Allowance for doubtful accounts
Other
Total deferred tax assets
Deferred tax liabilities relating to:
Intangible assets
Fixed assets
Other
Total deferred tax liabilities
Valuation allowance
Net deferred tax liability
9,924
652
11,480
7,426
5,371
1,294
6,781
55,834
(44,885)
(9,200)
(21,934)
(76,019)
(6,994)
$
(27,179) $
13,913
10,464
449
7,848
9,335
6,049
780
6,593
55,431
(49,559)
(10,323)
(12,765)
(72,647)
(7,911)
(25,127)
As of December 31, 2016, our federal, foreign and state net operating loss carryforwards for income tax purposes were
approximately $28.8 million, $6.4 million and $36.5 million, respectively. The federal and state net operating loss
carryforwards are subject to various Internal Revenue Code limitations and applicable state tax laws. If not utilized, the
federal net operating loss carryforwards will begin to expire in 2028 and the state net operating loss carryforwards will
expire over various periods beginning in 2017. Our foreign net operating loss carryforwards have an unlimited carryforward
period. Our federal and foreign tax credit carryforwards for income tax purposes were insignificant. Our state tax credit
carryforwards for income tax purposes were approximately $9.9 million, net of federal benefit. If not utilized, the state tax
credit carryforwards will begin to expire in 2017. A portion of the foreign and state net operating loss carryforwards and
state credit carryforwards have a valuation reserve due to management's uncertainty regarding the future ability to use
such carryforwards.
The following table illustrates the change in our deferred tax asset valuation allowance:
Years ended December 31,
(dollars in thousands)
2016
2015
2014
Balance
at beginning
of year
7,911 $
$
11,161
11,042
Acquisition
related
change
Charges to
expense
— $
(917) $
—
—
(3,250)
119
Balance at
end of
year
6,994
7,911
11,161
92
2016 Form 10-K
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
The following table sets forth the change to our unrecognized tax benefit for the years ended December 31, 2016,
2015 and 2014:
(dollars in thousands)
Balance at December 31, 2015
Increases from prior period positions
Decreases in prior year positions
Increases from current period positions
Settlements (payments)
Lapse of statute of limitations
Balance at December 31, 2016
$
$
2016
3,024 $
23
(17)
358
—
(243)
3,145 $
Years ended December 31,
2015
3,564 $
129
(651)
257
(274)
(1)
3,024 $
2014
3,698
195
(102)
1,046
—
(1,273)
3,564
The total amount of unrecognized tax benefit that, if recognized, would favorably affect the effective tax rate was $2.4
million at December 31, 2016. Certain prior period amounts relating to our 2014 acquisitions are covered under
indemnification agreements and, therefore, we have recorded a corresponding indemnification asset. We recognize accrued
interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. The total amount
of accrued interest and penalties included in the consolidated balance sheet as of December 31, 2016 and December 31,
2015 was insignificant. The total amount of interest and penalties included in the consolidated statements of comprehensive
income as an increase or decrease in income tax expense for 2016, 2015 and 2014 was insignificant.
We have taken federal and state tax positions for which it is reasonably possible that the total amounts of unrecognized
tax benefits might decrease within the next twelve months. This possible decrease could result from the expiration of
statutes of limitations. The reasonably possible decrease at December 31, 2016 was insignificant.
For our undistributed earnings of foreign subsidiaries, which we do not consider to be significant, we concluded that these
earnings would be permanently reinvested in the local jurisdictions and not repatriated to the United States. Accordingly,
we have not provided for U.S. federal income taxes and foreign withholding taxes on those undistributed earnings of our
foreign subsidiaries. It is not practicable to estimate the amount that might be payable if some or all of such earnings were
to be remitted.
13. Stock-based Compensation
Employee stock-based compensation plans
Under the 2016 Equity and Incentive Compensation Plan (the "2016 Equity Plan"), we may grant incentive stock options,
nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, other stock awards and cash
incentive awards to employees, directors and consultants. We maintain other stock-based compensation plans including
the 2008 Equity Incentive Plan (the “2008 Equity Plan”) and the 2004 Stock Plan, under which no additional grants may
be made, and the 2009 Equity Compensation Plan for Employees from Acquired Companies, under which we may grant
shares of common stock to employees pursuant to employment contracts or other arrangements entered into in connection
with past and future acquisitions.
In connection with the acquisition of Kintera in July 2008, we maintain the Kintera, Inc. Amended and Restated 2003
Equity Incentive Plan, as amended (the “Kintera 2003 Plan”), which we assumed upon the acquisition of Kintera. In
connection with the acquisition of Convio in May 2012, we maintain the Convio, Inc. 1999 Stock Option/Stock Issuance
Plan, as amended (the “Convio 1999 Plan”) and Convio, Inc. 2009 Stock Incentive Plan, as amended (the “Convio 2009
Plan”), which we assumed upon the acquisition of Convio. Our Compensation Committee of the Board of Directors
administers all of these plans and the stock-based awards are granted under terms determined by them.
2016 Form 10-K
93
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
The total number of authorized stock-based awards available under our plans was 7,014,287 as of December 31, 2016.
We issue common stock from our pool of authorized stock upon exercise of stock options and stock appreciation rights,
vesting of restricted stock units or upon granting of restricted stock.
Historically, we have issued four types of awards under these plans: restricted stock awards, restricted stock units, stock
appreciation rights and stock options. The following table sets forth the number of awards outstanding for each award
type as of:
Award type
Restricted stock awards
Restricted stock units
Stock appreciation rights
Stock options
Outstanding at December 31,
2016
1,178,592
465,395
469,075
3,502
2015
1,096,839
396,198
757,203
4,745
The majority of the stock-based awards granted under these plans have a 10-year contractual term. Stock appreciation
rights (“SARs”) have contractual lives of 7 years. Awards granted to our executive officers and certain members of
management are subject to accelerated vesting upon a change in control as defined in the employees’ retention agreement.
Expense recognition
We recognize compensation expense associated with stock options and awards with performance or market based vesting
conditions on an accelerated basis over the requisite service period of the individual grantees, which generally equals the
vesting period. We recognize compensation expense associated with restricted stock awards and SARs on a straight-line
basis over the requisite service period of the individual grantees, which generally equals the vesting period. Compensation
expense is recognized net of estimated forfeitures such that expense is recognized only for those stock-based awards that
are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if
actual forfeitures differ from initial estimates.
Stock-based compensation expense is allocated to cost of revenue and operating expenses on the consolidated statements
of comprehensive income based on where the associated employee’s compensation is recorded. The following table
summarizes stock-based compensation expense:
(in thousands)
Included in cost of revenue:
Cost of subscriptions
Cost of maintenance
Cost of services
Total included in cost of revenue
Included in operating expenses:
Sales, marketing and customer success
Research and development
General and administrative
Total included in operating expenses
Total stock-based compensation expense
Years ended December 31,
2016
2015
2014
$
$
1,168 $
508
1,621
3,297
3,844
6,467
19,030
29,341
32,638 $
1,130 $
420
1,944
3,494
2,979
4,865
13,908
21,752
25,246 $
687
689
2,229
3,605
2,147
3,264
8,329
13,740
17,345
The total amount of compensation cost related to unvested awards not recognized was $52.5 million at December 31,
2016. It is expected that this amount will be recognized over a weighted average period of 1.8 years.
94
2016 Form 10-K
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
Restricted stock awards
We have granted shares of common stock subject to certain restrictions under the 2016 Equity Plan, the 2008 Equity Plan
and the 2004 Stock Plan. Restricted stock awards granted to employees vest in equal annual installments generally over
four years from the grant date subject to the recipient’s continued employment with us. Restricted stock awards granted
to non-employee directors vest after one year from the date of grant or, if earlier, immediately prior to the next annual
election of directors, provided the non-employee director is serving as a director at that time. The fair market value of the
stock at the time of the grant is amortized on a straight-line basis to expense over the period of vesting. Recipients of
restricted stock awards have the right to vote such shares and receive dividends.
The following table summarizes our unvested restricted stock awards as of December 31, 2016, and changes during the
year then ended:
Restricted stock awards
Unvested at January 1, 2016
Granted
Vested
Forfeited
Unvested at December 31, 2016
Restricted
stock awards
1,096,839 $
574,309
(375,413)
(117,143)
1,178,592
Weighted
average
grant-date
fair value
43.28
53.59
38.70
46.05
49.49
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic value(1)
(in thousands)
8.2 $
75,430
(1)
The intrinsic value is calculated as the market value as of the end of the fiscal period.
The total fair value of restricted stock awards that vested during the years ended December 31, 2016, 2015 and 2014 was
$14.5 million, $10.6 million and $10.5 million, respectively. The weighted average grant-date fair value of restricted stock
awards granted during the years ended December 31, 2015 and 2014 was $48.82 and $37.89, respectively.
Restricted stock units
We have also granted restricted stock units subject to certain restrictions under the 2016 Equity Plan and the 2008 Equity
Plan. In addition, we assumed restricted stock units in connection with the Convio acquisition. Restricted stock units granted
to employees vest in equal annual installments generally over three years from the grant date subject to the recipient’s
continued employment with us. We have also granted restricted stock units for which vesting is subject to meeting certain
performance and/or market conditions. Restricted stock units granted with a market condition had a fair market value
assigned at the grant date based on the use of a Monte Carlo simulation model. The fair market value of the stock at the
time of the grant is amortized to expense on a straight-line basis over the period of vesting except for awards with market
or performance conditions, which are amortized on an accelerated basis over the period of vesting.
2016 Form 10-K
95
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
The following table summarizes our unvested restricted stock units as of December 31, 2016, and changes during the year
then ended:
Restricted stock units
Unvested at January 1, 2016
Granted
Forfeited
Expired
Vested
Unvested at December 31, 2016
Restricted
stock units
396,198 $
276,499
(33,274)
(3,500)
(170,528)
465,395
Weighted
average
grant-date
fair value
40.51
51.98
47.20
23.13
39.04
47.51
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic value(1)
(in thousands)
7.5 $
29,785
(1)
The intrinsic value is calculated as the market value as of the end of the fiscal period.
The total fair value of restricted stock units that vested during the years ended December 31, 2016, 2015 and 2014 was
$6.7 million, $3.9 million, and $1.4 million, respectively. The weighted average grant date fair value of restricted stock
units granted for the years ended December 31, 2015 and 2014 was $45.15 and $33.38, respectively.
Stock appreciation rights
We have granted SARs under the 2008 Equity Plan and the 2004 Stock Plan to certain members of management. The SARs
will be settled in stock at the time of exercise and vest in equal annual installments generally over four years from the date
of grant subject to the recipient’s continued employment with us. The number of shares issued upon the exercise of the
SARs is calculated as the difference between the share price of our stock on the date of exercise and the date of grant
multiplied by the number of SARs divided by the share price on the exercise date.
The following table summarizes our outstanding SARs as of December 31, 2016, and changes during the year then ended:
Stock appreciation rights
Outstanding at January 1, 2016
Exercised
Forfeited
Outstanding at December 31, 2016
Unvested and expected to vest at December 31, 2016
Vested and exercisable at December 31, 2016
Stock
appreciation
rights
757,203 $
Weighted
average
exercise
price
24.27
(284,424)
(3,704)
469,075
8,610
460,465
25.29
27.92
23.63
29.17
23.52
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic value(1)
(in thousands)
2.6 $
3.3
2.6
18,938
300
18,638
(1)
The intrinsic value is calculated as the difference between the market value as of the end of the fiscal period and the exercise price of the shares.
There have been no new SARs granted since 2013. The total intrinsic value of SARs exercised during the years ended
December 31, 2016, 2015 and 2014 was $10.7 million, $5.2 million, and $5.0 million, respectively. The total fair value of
SARs that vested during the years ended December 31, 2016, 2015 and 2014 was $1.0 million, $1.9 million, and $2.5
million, respectively. SARs granted with a market condition had a fair market value assigned at the grant date based on
the use of a Monte Carlo simulation model. All other SARs granted had a fair market value assigned at the grant date
based on the use of the Black-Scholes option pricing model.
96
2016 Form 10-K
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
Stock options
The following table summarizes our outstanding stock options as of December 31, 2016, and changes during the year
then ended:
Stock options
Outstanding at January 1, 2016
Exercised
Outstanding at December 31, 2016
Vested and exercisable at December 31, 2016
Stock
options
4,745 $
(1,243)
3,502
3,502
Weighted
average
exercise
price
11.60
12.61
11.25
11.25
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic value(1)
(in thousands)
1.8 $
1.8
185
185
(1)
The intrinsic value is calculated as the difference between the market value as of the end of the fiscal period and the exercise price of the shares.
There have been no new stock option awards granted since 2005. The total intrinsic value of stock options exercised during
the years ended December 31, 2016, 2015 and 2014 was insignificant. The total fair value of stock options that vested
during the years ended December 31, 2016, 2015 and 2014 was insignificant. All outstanding stock options granted had
a fair market value assigned at the grant date based on the use of the Black-Scholes option pricing model.
14. Stockholders' Equity
Preferred stock
Our Board of Directors may fix the relative rights and preferences of each series of preferred stock in a resolution of the
Board of Directors.
Dividends
Our Board of Directors has adopted a dividend policy, which provides for the distribution to stockholders a portion of cash
generated by us that is in excess of operational needs and capital expenditures. The 2014 Credit Facility limits the amount
of dividends payable and certain state laws restrict the amount of dividends distributed.
The following table provides information with respect to quarterly dividends paid on common stock during the year
ended December 31, 2016.
Declaration Date
February 9, 2016
April 27, 2016
August 1, 2016
November 1, 2016
$
Dividend
per Share
0.12
0.12
0.12
Record Date
February 26
Payable Date
March 15
May 27
June 15
August 26
September 15
0.12 November 23
December 15
On February 8, 2017, our Board of Directors declared a first quarter dividend of $0.12 per share payable on March 15,
2017 to stockholders of record on February 28, 2017.
Stock repurchase program
In August 2010, our Board of Directors approved a stock repurchase program that authorized us to purchase up to $50.0
million of our outstanding shares of common stock. The program does not have an expiration date. The shares can be
purchased from time to time on the open market or in privately negotiated transactions depending upon market conditions
2016 Form 10-K
97
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
and other factors. Under the 2014 Credit Facility, we also have restrictions on our ability to repurchase shares of our
common stock.
We account for purchases of treasury stock under the cost method. The remaining amount available to purchase stock
under the stock repurchase program was $50.0 million as of December 31, 2016.
Changes in accumulated other comprehensive loss by component
The changes in accumulated other comprehensive loss by component, consisted of the following:
(in thousands)
Accumulated other comprehensive loss, beginning of period
By component:
Gains and losses on cash flow hedges:
Accumulated other comprehensive loss balance, beginning of period
Other comprehensive income (loss) before reclassifications, net of tax
effects of $406, $514 and $644
Amounts reclassified from accumulated other comprehensive loss to
interest expense
Amounts reclassified from accumulated other comprehensive loss to
loss on debt extinguishment and termination of derivative instruments
Tax benefit included in provision for income taxes
Total amounts reclassified from accumulated other comprehensive loss
Net current-period other comprehensive income
Accumulated other comprehensive income (loss) balance, end of period
Foreign currency translation adjustment:
Accumulated other comprehensive loss balance, beginning of period
Translation adjustments
Accumulated other comprehensive loss balance, end of period
Accumulated other comprehensive loss, end of period
$
$
$
$
$
Years ended December 31,
2016
(825) $
2015
(1,032) $
2014
(1,385)
(19) $
(164) $
(256)
(626)
(818)
(999)
1,106
1,569
1,215
—
(436)
670
44
—
(606)
963
145
25 $
(19) $
587
(711)
1,091
92
(164)
(806) $
(868) $
(1,129)
324
(482)
62
(806)
261
(868)
(457) $
(825) $
(1,032)
15. Defined Contribution Plan
We have a defined contribution plan 401(k) (the 401K Plan) covering substantially all employees. Employees can contribute
between 1% and 30% of their salaries in 2016, 2015 and 2014, and we match 50% of qualified employees’ contributions
up to 6% of their salary. The 401K Plan also provides for additional employer contributions to be made at our discretion.
Total matching contributions to the 401K Plan for the years ended December 31, 2016, 2015 and 2014 were $7.6 million,
$5.3 million and $5.6 million, respectively. There were no discretionary contributions by us to the 401K Plan in 2016, 2015
and 2014.
98
2016 Form 10-K
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
16. Segment Information
As of December 31, 2016, our reportable segments were the GMBU, the ECBU, and the IBU. Following is a description of
each reportable segment:
•
•
•
The GMBU is focused on marketing, sales, delivery and support to all emerging and mid-sized prospects and
customers in North America;
The ECBU is focused on marketing, sales, delivery and support to all large and/or strategic prospects and customers
in North America; and
The IBU is focused on marketing, sales, delivery and support to all prospects and customers outside of North
America.
Our chief operating decision maker is our chief executive officer ("CEO"). The CEO reviews financial information presented
on an operating segment basis for the purposes of making certain operating decisions and assessing financial performance.
The CEO uses internal financial reports that provide segment revenues and operating income, excluding stock-based
compensation expense, amortization expense, depreciation expense, research and development expense and certain
corporate sales, marketing, general and administrative expenses. Currently, the CEO believes that the exclusion of these
costs allows for a better understanding of the operating performance of the operating units and management of other
operating expenses and cash needs. The CEO does not review any segment balance sheet information.
Summarized reportable segment financial results, were as follows:
(dollars in thousands)
Revenue by segment:
GMBU
ECBU
IBU
Other(1)
Total revenue
Segment operating income(2):
GMBU
ECBU
IBU
Other(1)
Less:
Corporate unallocated costs(3)
Stock-based compensation costs
Amortization expense
Interest expense
Other expense, net
Years ended December 31,
2016
2015
2014
$ 383,319 $ 313,935 $ 270,637
302,968
279,897
245,119
42,539
1,989
41,997
2,111
47,068
1,597
$ 730,815 $ 637,940 $ 564,421
$ 185,539 $ 156,876 $ 139,310
154,415
137,162
121,285
4,014
(106)
5,404
(120)
4,291
1,585
343,862
299,322
266,471
(207,026)
(195,146)
(176,614)
(32,638)
(42,398)
(10,583)
(291)
(25,246)
(32,218)
(8,073)
(1,687)
(17,345)
(26,148)
(6,011)
(1,119)
Income before provision for income taxes
$
50,926 $
36,952 $
39,234
(1) Other includes revenue and the related costs from the sale of solutions and services not directly attributable to a reportable segment.
(2)
Segment operating income includes direct, controllable costs related to the sale of solutions and services by the reportable segment.
(3) Corporate unallocated costs include research and development, depreciation expense, and certain corporate sales, marketing, general and
administrative expenses.
2016 Form 10-K
99
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
Revenue by solution and service group for each of our reportable segments was as follows:
(dollars in thousands)
GMBU revenue:
Subscriptions
Maintenance
Services
License fees and other
Total GMBU revenue
ECBU revenue:
Subscriptions
Maintenance
Services
License fees and other
Total ECBU revenue
IBU revenue:
Subscriptions
Maintenance
Services
License fees and other
Total IBU revenue
Other revenue:
Subscriptions
Maintenance
Services
License fees and other
Total Other revenue
Years ended December 31,
2016
2015
2014
$ 238,177 $ 167,010 $ 125,223
77,068
62,884
5,190
83,974
56,294
6,657
86,840
48,814
9,760
$ 383,319 $ 313,935 $ 270,637
$ 171,279 $ 147,719 $ 121,484
57,290
67,875
6,524
56,196
66,741
9,241
45,069
67,756
10,810
$ 302,968 $ 279,897 $ 245,119
$
19,363 $
16,885 $
12,588
13,631
8,931
1,657
9,943
1,538
16,703
15,509
11,801
3,055
42,539 $
41,997 $
47,068
168 $
145 $
—
—
—
—
1,821
1,966
$
1,989 $
2,111 $
25
—
—
1,572
1,597
$
$
Total consolidated revenue
$ 730,815 $ 637,940 $ 564,421
We generate a portion of our revenue from foreign operations. The following table presents revenue by geographic region
based on country of invoice origin and identifiable, long-lived assets by geographic region based on the location of the
assets.
(dollars in thousands)
Revenue from external customers:
2016
2015
2014
Property and equipment:
December 31, 2016
December 31, 2015
It is impracticable for us to identify our total assets by segment.
100
2016 Form 10-K
United
States
Total
Foreign
Total
$ 660,339 $
570,519
491,731
70,476 $ 730,815
637,940
67,421
564,421
72,690
$
47,663 $
49,682
2,606 $
2,969
50,269
52,651
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
17. Quarterly Results (Unaudited)
(dollars in thousands, except per share data)
Total revenue
Gross profit
Income from operations
Income before provision for income taxes
Net income
Earnings per share
Basic
Diluted
(dollars in thousands, except per share data)
Total revenue
Gross profit
Income from operations
Income before provision for income taxes
Net income
Earnings per share
Basic
Diluted
$
$
$
$
December 31,
2016
198,305 $
September 30,
2016
183,063 $
June 30,
2016
180,191 $
105,903
24,024
21,372
17,284
99,746
13,540
10,884
8,934
96,579
13,624
10,838
9,060
March 31,
2016
169,256
89,367
10,612
7,832
6,237
0.37 $
0.36
0.19 $
0.19
0.20 $
0.19
0.14
0.13
December 31,
2015
175,877 $
90,661
10,271
7,255
6,411
September 30,
2015
158,811 $
June 30,
2015
156,259 $
84,638
13,968
12,344
7,911
82,829
14,461
11,314
7,042
0.14 $
0.14
0.17 $
0.17
0.15 $
0.15
March 31,
2015
146,993
75,181
8,012
6,039
4,285
0.09
0.09
Note: The individual amounts for each quarter may not sum to full year totals due to rounding.
The results of operations of acquired companies are included in the consolidated results of operations from the date of
their respective acquisition as described in Note 3 of these consolidated financial statements. In addition, we completed
the sale of a business in 2015 as discussed in Note 18 of these consolidated financial statements.
Our early adoption of ASU 2016-09 impacted the 2016 fiscal year amounts previously reported for both the three months
ended March 31, 2016 and June 30, 2016. See Note 2 to these consolidated financial statements for a detailed discussion
of ASU 2016-09 and its effects upon adoption.
18. Disposition of Business
On May 18, 2015, we completed the sale of RLC Customer Technology B.V. ("RLC"), a formerly wholly-owned entity
based in the Netherlands, to a private software company by selling all of the issued and outstanding stock of RLC in
exchange for $0.4 million in gross cash proceeds. We incurred an insignificant amount of legal costs associated with the
disposition of this business. As part of the disposition, we derecognized $1.4 million of goodwill related to RLC. As a result
of this disposition, we also recognized an insignificant foreign currency translation loss in our consolidated statement of
comprehensive income. Overall, this transaction, including costs associated with the disposition and the recognition of an
insignificant foreign currency translation gain, resulted in a $2.0 million loss, which was recorded in loss on sale of business
in our consolidated statements of comprehensive income for the year ended December 31, 2015. The disposition of RLC
did not qualify for reporting as a discontinued operation since the transaction did not represent a strategic shift in our
operations.
2016 Form 10-K
101
Blackbaud, Inc.
Notes to consolidated financial statements (continued)
The following table presents the carrying amounts of RLC's assets and liabilities immediately preceding the disposition on
May 18, 2015, which are excluded from our consolidated balance sheets as of December 31, 2016 and 2015.
(in thousands)
Cash and cash equivalents
Accounts receivable, net of allowance
Prepaid expenses and other assets
Property and equipment, net
Deferred tax asset
Goodwill
Intangible assets, net
Total assets held-for-sale
Trade accounts payable
Accrued expenses and other liabilities
Deferred revenue
Deferred tax liability
Total liabilities held-for-sale
$
$
$
$
952
132
38
31
6
1,374
289
2,822
82
181
490
90
843
102
2016 Form 10-K
Blackbaud, Inc.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) are designed only to provide
reasonable assurance that they will meet their objectives. As of the end of the period covered by this report, we carried
out an evaluation, under the supervision and with the participation of our management, including our Chief Executive
Officer (principal executive officer) and Chief Financial Officer (principal financial and accounting officer), of the effectiveness
of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)) pursuant to Exchange Act Rule
13a-15(b). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures are effective to provide the reasonable assurance discussed above.
Changes in Internal Control Over Financial Reporting
No change in internal control over financial reporting occurred during the fiscal quarter ended December 31, 2016 with
respect to our operations that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes those
policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are
being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a
material effect on the financial statements.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of
December 31, 2016, based on the framework in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this evaluation under the Internal
Control - Integrated Framework, management concluded that our internal control over financial reporting was effective
as of December 31, 2016.
Attestation Report of Registered Public Accounting Firm
The effectiveness of our internal control over financial reporting as of December 31, 2016, has been audited by our
independent registered public accounting firm, as stated in their attestation report, which is included in Item 8 of this
Annual Report on Form 10-K.
ITEM 9B. OTHER INFORMATION
None.
2016 Form 10-K
103
Blackbaud, Inc.
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
The information required by Item 10 with respect to Directors and Executive Officers is incorporated by reference from the
information under the captions “Election of Directors,” “Information Regarding Meetings of the Board and Committees,”
“Section 16(a) Beneficial Ownership Reporting Compliance,” and “Code of Business Conduct and Ethics and Code of
Ethics,” contained in Blackbaud’s Proxy Statement for the 2017 Annual Meeting of Stockholders expected to be held on
June 13, 2017, except for the identification of executive officers of the Registrant which is set forth in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from the information under the captions "Director
Compensation," “Executive Compensation,” “Compensation Discussion and Analysis” and “Summary Compensation
Table” contained in Blackbaud’s Proxy Statement for the 2017 Annual Meeting of Stockholders expected to be held on
June 13, 2017.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 12 is incorporated by reference from information under the captions “Stock Ownership”
and “Equity Compensation Plan Information” contained in Blackbaud’s Proxy Statement for the 2017 Annual Meeting of
Stockholders expected to be held on June 13, 2017.
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE
The information required by Item 13 is incorporated by reference from the information under the captions “Transactions
with Related Persons,” and “Independence of Directors” contained in Blackbaud’s Proxy Statement for the 2017 Annual
Meeting of Stockholders expected to be held on June 13, 2017.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 is incorporated by reference from the information under the caption “Audit Committee
Report,” contained in Blackbaud’s Proxy Statement for the 2017 Annual Meeting of Stockholders expected to be held on
June 13, 2017.
104
2016 Form 10-K
Blackbaud, Inc.
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are included as part of the Annual Report on Form 10-K:
1.
Financial statements
The following statements are filed as part of this report:
Report of independent registered public accounting firm
Consolidated balance sheets as of December 31, 2016 and 2015
Consolidated statements of comprehensive income for the years ended December 31, 2016, 2015 and 2014
Consolidated statements of cash flows for the years ended December 31, 2016, 2015 and 2014
Consolidated statements of stockholders’ equity for the years ended December 31, 2016, 2015 and 2014
Notes to consolidated financial statements
2. Financial statement schedules
Page No.
60
61
62
63
64
65
Schedules not listed above have been omitted because the information required to be set forth therein is not applicable
or is shown in the financial statements thereto.
3. Exhibits
The exhibits listed below are filed or incorporated by reference as part of this Annual Report on Form 10-K:
Exhibit
Number
2.1
2.2
2.3
2.4
2.5 *
2.6
Description of Document
Agreement and Plan of Merger and
Reincorporation dated April 6, 2004
Stock Purchase Agreement dated January 16,
2007 by and among Target Software, Inc.,
Target Analysis Group, Inc., all of the
stockholders of Target Software, Inc. and Target
Analysis Group, Inc., Charles Longfield, as
stockholder representative, and Blackbaud, Inc.
Agreement and Plan of Merger dated as of May
29, 2008 by and among Blackbaud, Inc.,
Eucalyptus Acquisition Corporation and Kintera,
Inc.
Share Purchase Agreement dated as of April 29,
2009 between RLC Group B.V., as the Seller,
and Blackbaud, Inc., as the Purchaser
Stock Purchase Agreement dated as of February
1, 2011 by and among Public Interest Data, Inc.,
all for the stockholders of Public Interest Data,
Inc., Stephen W. Zautke, as stockholder
representative and Blackbaud, Inc.
Agreement and Plan of Merger dated as of
January 16, 2012 by and among Blackbaud, Inc.,
Caribou Acquisition Corporation and Convio,
Inc.
Filed In
Registrant’s
Form
S-1/A
Dated
4/6/2004
Filed
Herewith
Exhibit
Number
2.1
8-K
1/18/2007
2.2
8-K
5/30/2008
2.3
10-Q
8/7/2009
10.42
10-Q
5/10/2011
2.3
8-K
1/17/2012
2.4
2016 Form 10-K
105
Blackbaud, Inc.
Description of Document
Stock Purchase Agreement dated as of October
6, 2011 by and among Everyday Hero Pty. Ltd.,
all of the stockholders of Everyday Hero Pty. Ltd.,
Nathan Betteridge as stockholder representative
and Blackbaud Pacific Pty. Ltd.
Purchase Agreement, dated August 30, 2014, by
and among MicroEdge Holdings, LLC,
Blackbaud, Inc, direct and indirect holders of all
of the outstanding equity interests of MicroEdge
Holdings, LLC, and VFF I AIV I, L.P., as Sellers’
Representative.
Unit Purchase Agreement, dated as of August
10, 2015, by and between Smart Tuition
Holdings, LLC and Blackbaud, Inc.
Amendment, Consent and Waiver, Agreement
dated as of October 2, 2015, by and between
Smart Tuition Holdings, LLC and Blackbaud, Inc.
Amended and Restated Certificate of
Incorporation of Blackbaud, Inc.
Filed In
Registrant’s
Form
10-K
Dated
2/29/2012
Filed
Herewith
Exhibit
Number
2.7
8-K
10/2/2014
10.76
8-K
10/8/2015
10.78
8-K
10/8/2015
10.79
DEF 14A
4/30/2009
Amended and Restated Bylaws of Blackbaud,
8-K
3/22/2011
Inc.
Blackbaud, Inc. 1999 Stock Option Plan, as
amended
Blackbaud, Inc. 2001 Stock Option Plan, as
amended
Blackbaud, Inc. 2004 Stock Plan, as amended,
together with Form of Notice of Stock Option
Grant and Stock Option Agreement
Form of Notice of Restricted Stock Grant and
Restricted Stock Agreement under the
Blackbaud, Inc. 2004 Stock Plan
Form of Notice of Stock Appreciation Rights
Grant and Stock Appreciation Rights Agreement
under the Blackbaud, Inc. 2004 Stock Plan
3.4
10.6
10.8
S-1/A
4/6/2004
S-1/A
4/6/2004
8-K
6/20/2006
10.20
10-K
2/28/2007
10.26
10-K
2/28/2007
10.27
Blackbaud, Inc. 2008 Equity Incentive Plan
DEF 14A
4/29/2008
Form of Notice of Grant and Stock Option
Agreement under Blackbaud, Inc. 2008 Equity
Incentive Plan
Form of Notice of Grant and Restricted Stock
Agreement under Blackbaud, Inc. 2008 Equity
Incentive Plan
Form of Notice of Grant and Stock Appreciation
Rights Agreement under Blackbaud, Inc. 2008
Equity Incentive Plan
S-8
S-8
S-8
8/4/2008
10.34
8/4/2008
10.35
8/4/2008
10.36
Exhibit
Number
2.7
2.8
2.9
2.10
3.4
3.5
10.6 †
10.8 †
10.20 †
10.26 †
10.27 †
10.33 †
10.34 †
10.35 †
10.36 †
10.37 †** Kintera, Inc. 2000 Stock Option Plan, as
10-K/A
3/26/2008
10.2
amended, and form of Stock Option Agreement
thereunder
10.38 †** Kintera, Inc. Amended and Restated 2003 Equity
10-K/A
3/26/2008
10.3
Incentive Plan, as amended, and form of Stock
Option Agreement thereunder
10.39 †
Form of Retention Agreement
10-Q
11/10/2008
10.37
106
2016 Form 10-K
Blackbaud, Inc.
Exhibit
Number
10.40
10.41 †
10.49 †
10.50 †
10.55 †
Description of Document
Triple Net Lease Agreement dated as of October
1, 2008 between Blackbaud, Inc. and Duck Pond
Creek-SPE, LLC
Blackbaud, Inc. 2009 Equity Compensation Plan
for Employees from Acquired Companies
Employment Agreement dated November 7,
2008 between Blackbaud, Inc. and Charlie
Cumbaa
Employment Agreement dated June 25, 2008
between Blackbaud, Inc. and Kevin Mooney
Employment Agreement dated November 14,
2011 between Blackbaud, Inc. and Anthony W.
Boor
10.59 †*** Convio, Inc. 2009 Amended and Restated Stock
Incentive Plan, as amended, and forms of stock
option agreements
10.60 †*** Convio, Inc. Form of Nonstatutory Stock Option
Notice (Double Trigger)
10.61 †*** Convio, Inc. Form of Restricted Stock Unit Notice
(Double Trigger) and Agreement
10.62 †*** Convio, Inc. 1999 Stock Option/Stock Issuance
10.63 †
10.64 †
10.65 †
10.66
10.68 †
10.69 †
10.70 †
10.71 †
10.72 †
Plan, as amended, and forms of stock option
agreements
Blackbaud, Inc. 2008 Equity Incentive Plan, as
amended
Amendment to the Blackbaud, Inc. 2008 Equity
Incentive Plan
Form of Employment Agreement between
Blackbaud, Inc. and each of Anthony W. Boor,
Charles T. Cumbaa, Jana B. Eggers, Kevin W.
Mooney and Joseph D. Moye
Lease Amendment and Remediation Agreement
entered into as of March 22, 2013, by and
between Blackbaud, Inc. and Duck Pond Creek-
SPE, LLC.
Form of Management Transition Retention
Agreement between Blackbaud, Inc. and each of
Anthony W. Boor, Charles T. Cumbaa, Jana B.
Eggers, Kevin W. Mooney and Joseph D. Moye
Management Transition Retention Agreement
between Blackbaud, Inc. and Bradley J. Holman
Letter Agreement dated October 23, 2013
between Blackbaud, Inc. and Anthony W. Boor
Offer Letter Agreement dated November 7,
2013 between Blackbaud, Inc. and Michael P.
Gianoni
Employment and Noncompetition Agreement
dated November 8, 2013 between Blackbaud,
Inc. and Michael P. Gianoni
Filed In
Registrant’s
Form
8-K
Dated
12/11/2008
Filed
Herewith
Exhibit
Number
10.37
S-8
7/2/2009
10-Q
11/8/2011
10-Q
11/8/2011
10-K
2/29/2012
10.41
10.49
10.50
10.55
S-1/A
3/19/2010
10.1
8-K
8-K
S-1
8-K
8-K
2/28/2011
2/28/2011
1/22/2010
6/26/2012
6/26/2012
10-K
2/26/2013
10.1
10.2
10.2
10.59
10.60
10.65
8-K
3/28/2013
10.66
10-Q
5/7/2013
10.68
10-Q
5/7/2013
8-K
10/25/2013
10-K
2/26/2014
10.69
10.70
10.71
10-K
2/26/2014
10.72
2016 Form 10-K
107
Blackbaud, Inc.
Exhibit
Number
10.73
10.74
10.75
10.77
10.80 †
10.81 †
10.82 †
10.83 †
10.84
10.85 †
10.86 †
10.87
21.1
23.1
31.1
31.2
Description of Document
Credit Agreement, dated as of February 28,
2014, by and among Blackbaud, Inc., as
Borrower, the lenders referred to therein,
SunTrust Bank, as Administrative Agent,
Swingline Lender and an Issuing Lender, Bank of
America, N.A., as an Issuing Lender and
Syndication Agent, and Regions Bank and Fifth
Third Bank as Co-Documentation Agents with
SunTrust Robinson Humphrey, Inc., Merrill
Lynch, Pierce Fenner & Smith Incorporated and
Fifth Third Bank, as Joint Lead Arrangers and
Joint Bookrunners.
Pledge Agreement, dated as of February 28,
2014, by Blackbaud and Convio in favor of
SunTrust Bank, as Administrative Agent, for the
ratable benefit of itself and the secured parties
referred to therein.
Guaranty Agreement, dated as of February 28,
2014, by Convio in favor of SunTrust Bank, as
Administrative Agent, for the ratable benefit of
itself and the secured parties referred to therein.
Employment contract between Blackbaud, Inc.
and Bradley J. Holman
Deed of Release dated October 29, 2015 by and
between Bradley J. Holman and Blackbaud
Pacific Pty Ltd.
Amended and Restated Employment and
Noncompetition Agreement dated December 9,
2015 between Blackbaud, Inc. and Michael P.
Gianoni
Offer Letter Agreement between Blackbaud, Inc.
and Brian E. Boruff
Employee Agreement between Blackbaud, Inc.
and Brian E. Boruff
Lease Agreement dated May 16, 2016 between
Blackbaud, Inc. and HPBB1, LLC
Blackbaud, Inc. 2016 Equity and Incentive
Compensation Plan
Form of Retention Agreement dated April 19,
2016 between Blackbaud, Inc. and Brian E.
Boruff
First Amendment to Lease Agreement, dated as
of August 22, 2016, between HPBB1, LLC and
Blackbaud, Inc.
Subsidiaries of Blackbaud, Inc.
Consent of Independent Registered Public
Accounting Firm
Certification by the Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Certification by the Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Filed In
Registrant’s
Form
8-K
Dated
3/3/2014
Filed
Herewith
Exhibit
Number
10.73
8-K
3/3/2014
10.74
8-K
3/3/2014
10.75
10-Q
8/6/2015
10-K
2/24/2016
10.77
10.80
10-K
2/24/2016
10.81
10-Q
10-Q
10-Q
5/4/2016
5/4/2016
8/4/2016
10.82
10.83
10.84
DEF 14A
4/26/2016 Appendix C
10-Q
11/10/2008
10.37
10-Q
11/4/2016
10.87
X
X
X
X
108
2016 Form 10-K
Blackbaud, Inc.
Exhibit
Number
32.1
Description of Document
Certification by the Chief Executive Officer
pursuant to 18 U.S.C. 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002
32.2
Certification by the Chief Financial Officer
pursuant to 18 U.S.C. 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002
101.INS **** XBRL Instance Document
101.SCH **** XBRL Taxonomy Extension Schema Document
101.CAL **** XBRL Taxonomy Extension Calculation Linkbase
Document
101.DEF **** XBRL Taxonomy Extension Definition Linkbase
Document
101.LAB **** XBRL Taxonomy Extension Label Linkbase
Document
101.PRE **** XBRL Taxonomy Extension Presentation Linkbase
Document
Registrant’s
Form
Filed In
Dated
Exhibit
Number
Filed
Herewith
X
X
X
X
X
X
X
X
*
**
***
The registrant has applied for an extension of the confidential treatment it was previously granted with respect
to portions of this exhibit. Those portions have been omitted from the exhibit and filed separately with the U.S.
Securities and Exchange Commission.
The Kintera, Inc. 2000 Stock Option Plan, as amended, and form of Stock Option Agreement thereunder
(“Kintera 2000 Plan Documents”) and the Kintera, Inc. Amended and Restated 2003 Equity Incentive Plan, as
amended, and form of Stock Option Agreement thereunder (“Kintera 2003 Plan Documents”) were filed by
Kintera in its Form 10-K/A on March 26, 2008 as Exhibits 10.2 and 10.3, respectively. We assumed the Kintera
2000 Plan Documents and Kintera 2003 Plan Documents when we acquired Kintera in July 2008. We filed the
Kintera 2000 Plan Documents and Kintera 2003 Plan Documents by incorporation by reference as exhibits
10.37 and 10.38, respectively, in our Form S-8 on August 4, 2008.
The Convio, Inc. 2009 Amended and Restated Stock Incentive Plan, as amended, and forms of stock option
agreements thereunder (“Convio 2009 Original Plan Documents”) and the Convio, Inc. 1999 Stock Option/
Stock Issuance Plan, as amended, and forms of stock option agreements thereunder (“Convio 1999 Plan
Documents”) were filed by Convio in its Forms S-1/A and S-1, filed March 19, 2010 and January 25, 2010 as
exhibits 10.1 and 10.2, respectively. The Convio, Inc. Form of Nonstatutory Stock Option Notice (Double
Trigger) and Convio, Inc. Form of Restricted Stock Unit Notice (Double Trigger) and Agreement were filed by
Convio in its Form 8-K on February 28, 2011 as exhibits 10.1 and 10.2 (together with the Convio 2009 Original
Plan Documents, the “Convio 2009 Plan Documents”). We assumed the Convio 2009 Plan Documents and
Convio 1999 Plan Documents when we acquired Convio in May 2012. We filed the Convio 2009 Plan
Documents and Convio 1999 Plan Documents by incorporation by reference as exhibits 10.59, 10.60, 10.61
and 10.62 in our Form S-8 on May 7, 2012.
**** Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Annual Report on
Form 10-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or
otherwise subject to liability of that Section, and shall not be part of any registration statement or other
document filed under the Securities Act of the Exchange Act, except as shall be expressly set forth by specific
reference in such filing.
†
Indicates management contract or compensatory plan, contract or arrangement.
ITEM 16. Form 10-K Summary
Not applicable.
2016 Form 10-K
109
Blackbaud, Inc.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Signed: February 22, 2017
Blackbaud, Inc.
/S/ MICHAEL P. GIANONI
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed below by the
following persons on behalf of the Registrant and on the dates indicated.
/S/ MICHAEL P. GIANONI
Michael P. Gianoni
President, Chief Executive Officer and
Director (Principal Executive Officer)
Date: February 22, 2017
/S/ ANTHONY W. BOOR
Anthony W. Boor
Executive Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
Date: February 22, 2017
/S/ ANDREW M. LEITCH
Andrew M. Leitch
Chairman of the Board of Directors
Date: February 22, 2017
/S/ TIMOTHY CHOU
Director
Date: February 22, 2017
Timothy Chou
/S/ GEORGE H. ELLIS
Director
Date: February 22, 2017
George H. Ellis
/S/ DAVID G. GOLDEN
Director
David G. Golden
Date: February 22, 2017
/S/ SARAH E. NASH
Director
Date: February 22, 2017
Sarah E. Nash
/S/ JOYCE M. NELSON
Director
Joyce M. Nelson
Date: February 22, 2017
/S/ PETER J. KIGHT
Peter J. Kight
Director
Date: February 22, 2017
110
2016 Form 10-K
SUBSIDIARIES OF BLACKBAUD, INC.
As of February 22, 2017
Blackbaud, Inc.
Subsidiaries
Blackbaud Asia Limited
Blackbaud Canada, Inc.
Blackbaud Europe Ltd.
Blackbaud Global Ltd.
Blackbaud Pacific Pty. Ltd.
Convio, LLC
Everyday Hero Ltd.
Everyday Hero Pty. Ltd.
Good + Geek, LLC
Microedge, LLC
MyCharity, Ltd.
NPO Account Services, LLC
Smart, LLC
VFF I AIV I Corp.
EXHIBIT 21.1
Organized Under
Laws of:
Delaware
Hong Kong
Canada
Scotland
England and Wales
Australia
Delaware
England and Wales
Australia
Delaware
New York
Ireland
Delaware
Delaware
Delaware
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8
(No. 333-120690, No. 333-138448, No. 333-152749, No. 333-160423, No. 333-181210, 333-182407 and
333-212057) of Blackbaud, Inc., of our report dated February 22, 2017, relating to the financial statements
and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
/S/ PRICEWATERHOUSECOOPERS LLP
Charlotte, North Carolina
February 22, 2017
Blackbaud, Inc.
EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael P. Gianoni, certify that:
1.
I have reviewed this annual report on Form 10-K of Blackbaud, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 22, 2017
By:
/s/ Michael P. Gianoni
Michael P. Gianoni
President and Chief Executive Officer
(Principal Executive Officer)
Blackbaud, Inc.
EXHIBIT 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Anthony W. Boor, certify that:
1.
I have reviewed this annual report on Form 10-K of Blackbaud, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 22, 2017
By:
/s/ Anthony W. Boor
Anthony W. Boor
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Blackbaud, Inc.
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Blackbaud, Inc. (the “Company”) for the period ended
December 31, 2016 as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”),
I, Michael P. Gianoni, President and Chief Executive Officer, hereby certify, pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: February 22, 2017
By:
/s/ Michael P. Gianoni
Michael P. Gianoni
President and Chief Executive Officer
(Principal Executive Officer)
Blackbaud, Inc.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Blackbaud, Inc. (the “Company”) for the period ended
December 31, 2016 as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”),
I, Anthony W. Boor, Executive Vice President and Chief Financial Officer, hereby certify, pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: February 22, 2017
By:
/s/ Anthony W. Boor
Anthony W. Boor
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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Blackbaud, Inc.
2000 Daniel Island Drive
Charleston, South Carolina 29492
Phone: 800-443-9441
Fax: 843-216-6100
www.blackbaud.com
BR09227Q-0417-10K